Short answer, yes. A website with reciprocating links to other credible websites in your city or industry will achieve better Google ranks than a website without. Many of our clients in #1 spot in Google share reciprocating links with their vendors, suppliers, manufacturers and partners. Although a small piece of larger SEO-puzzle, it’s definitely worthwhile.
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Yes. But make sure to pick the ranked pages where you want your link to be place.
Link exchange has been a practice in the internet ever since. And it is a good practice too – if you do it right. Link exchange has a potential to positively impact site traffic and improve business relations.
It does have its benefits, but I'm quite sure this practice is frowned upon.
Great question with an excellent answer.