Barter in Transition Economies: Competing Explanations Confront Ukranian Data
AbstractIn this paper we survey the common explanations of barter in transition economies and expose them to detailed survey data on 165 barter deals in Ukraine in 1997. The evidence does not support the notion that soft budget constraints, lack of restructuring, or that the virtual economy are the driving forces behind barter. Further, tax avoidance is only weakly associated with the incidence of barter in Ukraine. We then explore an alternative explanation of barter as a mechanism to address transitional challenges where capital markets and economic institutions are poorly developed. First, barter helps to maintain production by creating a deal-specific collateral which softens the liquidity squeeze in the economy when credit enforcement is prohibitively costly. Second, barter helps to maintain production by preventing firms to be exploited by their input suppliers when suppliers' bargaining position is very strong due to high costs of switching suppliers. Thus, in the absence of trust and functioning capital markets barter is a self-enforcing response to imperfect input and financial markets in the former Soviet Union. The paper concludes by discussing potential long-term costs of barter arrangements, and by suggesting particular pitfalls of expansionary monetary policy in barter economies such as Ukraine and Russia.
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Bibliographic InfoPaper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 287.
Date of creation: 01 Jan 2000
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financial crisis; trust; contract enforcement in transition; arrears; the virtual economy; imperfect capital markets;
Other versions of this item:
- Gorochowskij, Bogdan & Kaufmann, Daniel & Marin, Dalia, 2000. "Barter In Transition Economies: Competing Explanations Confront Ukrainian Data," CEPR Discussion Papers 2432, C.E.P.R. Discussion Papers.
- Marin, Dalia & Kaufmann, Daniel & Gorochowskij, Bogdan, 2000. "Barter in Transition Economies: Competing Explanations Confront Ukrainian Data," Discussion Papers in Economics 63, University of Munich, Department of Economics.
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
- P30 - Economic Systems - - Socialist Institutions and Their Transitions - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-10-01 (All new papers)
- NEP-EEC-2001-10-01 (European Economics)
- NEP-IFN-2001-10-01 (International Finance)
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