The determinants of parts and components trade: the role of trust and commitment

Abstract

We draw on the knowledge from the fields of international economics and international marketing to improve our insights on the determinants of bilateral trade, in particular trade in Parts and Components (P&C). While trade economists have confirmed the importance of trade agreements, infrastructure and institutional quality among others, as important determinants of trade, international marketers have pointed to the critical role of trust and commitment among partners as antecedents to cross border relationships. In this paper, we introduce macro level variables to represent the antecedents of trust and commitment between dyads in a trade gravity model. We base our findings on 17,030 bilateral relationships involving 291 SITC 5 digit products that we classify as P&C. Our findings confirm the importance of cultural distance, business ethics and transaction specific investments in a bilateral trade relationship. In particular, we find that trust and commitment among partners are more important in P&C trade.