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Disorganization and Financial Collapse

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  • Dalia Marin
  • Monika Schnitzer

Abstract

Recently, Blanchard and Kremer (BK) argued that disorganization has led to the output decline in the former Soviet Union. In this paper we introduce liquidity and credit constraints into the BK model and show how these problems can alleviate the hold-up problem. We argue further that barter creates a hostage which allows to deal with disorganization when credit enforcement is prohibitively costly. The theory helps to explain how the three observed phenomena of output decline, inter-firms arrears and barter in transition economies are connected. Based on a survey of 165 barter deals in the Ukraine in 1997, we reproduce the BK result with firm level and deal specific data and we show that in addition to the input shortage the financial shortage and barter have each an important effect on output growth.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2000/wp-cesifo-2000-09/cesifo_wp339.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 339.

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Date of creation: 2000
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Handle: RePEc:ces:ceswps:_339

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Keywords: Transition; financial crisis; output fall; credit constraint; barter; hold-up;

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References

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  1. Roland, G. & Verdier, T., 1997. "Transition and the Output Fall," DELTA Working Papers, DELTA (Ecole normale supérieure) 97-09, DELTA (Ecole normale supérieure).
  2. Marin, Dalia & Schnitzer, Monika, 1997. "The Economic Institution of International Barter," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1658, C.E.P.R. Discussion Papers.
  3. Blanchard, Olivier & Kremer, Michael, 1997. "Disorganization," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(4), pages 1091-1126, November.
  4. Marin, Dalia & Kaufmann, Daniel & Gorochowskij, Bogdan, 2000. "Barter in Transition Economies: Competing Explanations Confront Ukrainian Data," Discussion Papers in Economics, University of Munich, Department of Economics 63, University of Munich, Department of Economics.
  5. Marin, Dalia & Schnitzer, Monika, 2003. "Creating creditworthiness through reciprocal trade," Munich Reprints in Economics, University of Munich, Department of Economics 19259, University of Munich, Department of Economics.
  6. Dalia Marin & Monika Schnitzer, 2002. "Contracts in Trade and Transition: The Resurgence of Barter," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262133997, December.
  7. Canice Prendergast & Lars Stole, 2001. "Barter, Liquidity and Market Segmentation," CESifo Working Paper Series 586, CESifo Group Munich.
  8. Dalia Marin, 2002. "Trust versus illusion: What is driving demonetization in the former Soviet Union?," The Economics of Transition, The European Bank for Reconstruction and Development, The European Bank for Reconstruction and Development, vol. 10(1), pages 173-200, March.
  9. Konings, Jozef & Walsh, Patrick Paul, 1998. "Disorganization in the Transition Process: Firm-Level Evidence from Ukraine," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1928, C.E.P.R. Discussion Papers.
  10. Wendy Carlin & Steven Fries & Mark Schaffer & Paul Seabright, 2000. "Barter and Non-Monetary Transactions in Transition Economies: Evidence from a Cross-Country Survey," CERT Discussion Papers, Centre for Economic Reform and Transformation, Heriot Watt University 0004, Centre for Economic Reform and Transformation, Heriot Watt University.
  11. Johnson, Simon & McMillan, John & Woodruff, Christopher, 1999. "Contract Enforcement in Transition," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2081, C.E.P.R. Discussion Papers.
  12. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1992. "The Transition to a Market Economy: Pitfalls of Partial Reform," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 107(3), pages 889-906, August.
  13. Abhijit V. Banerjee & Eric S. Maskin, 1996. "A Walrasian Theory of Money," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1753, Harvard - Institute of Economic Research.
  14. Guillermo Calvo & Fabrizio Coricelli, 1992. "Output Collapse in Eastern Europe," IMF Working Papers 92/64, International Monetary Fund.
  15. J. Rostowski, 1993. "The inter-enterprise debt explosion in the former Soviet Union: causes, consequences, cures," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 20968, London School of Economics and Political Science, LSE Library.
  16. Marin, Dalia & Schnitzer, Monika, 1995. "Tying Trade Flows: A Theory of Countertrade with Evidence," American Economic Review, American Economic Association, American Economic Association, vol. 85(5), pages 1047-64, December.
  17. Banerjee, Abhijit V & Maskin, Eric S, 1996. "A Walrasian Theory of Money and Barter," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(4), pages 955-1005, November.
  18. Perotti, E. C., 1998. "Inertial credit and opportunistic arrears in transition," European Economic Review, Elsevier, Elsevier, vol. 42(9), pages 1703-1725, November.
  19. Williamson, Oliver E, 1983. "Credible Commitments: Using Hostages to Support Exchange," American Economic Review, American Economic Association, American Economic Association, vol. 73(4), pages 519-40, September.
  20. Ickes, B.W. & Ryterman, R., 1993. "Roadblock to Economic Reform: Inter-Enterprise Debt and the Transition to Markets," Papers, Pennsylvania State - Department of Economics 2-93-1, Pennsylvania State - Department of Economics.
  21. Blejer,Mario I. & Eckstein,Zvi & Hercowitz,Zvi & Leiderman,Leonardo (ed.), 1996. "Financial Factors in Economic Stabilization and Growth," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521480505.
  22. J Rostowski, 1993. "The Inter-Enterprise Debt Explosion in the Former Soviet Union: Causes, Consequences, Cures," CEP Discussion Papers dp0142, Centre for Economic Performance, LSE.
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