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Disorganization and financial collapse

  • Marin, Dalia
  • Schnitzer, Monika

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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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 49 (2005)
Issue (Month): 2 (February)
Pages: 387-408

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Handle: RePEc:eee:eecrev:v:49:y:2005:i:2:p:387-408
Contact details of provider: Web page: http://www.elsevier.com/locate/eer

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  1. Jozef Konings & Patrick Paul Walsh, 1998. "Disorganisation in the Transition Process: Firm Level Evidence from Ukraine," LICOS Discussion Papers 7198, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  2. Blanchard, O & Kremer, M, 1996. "Disorganization," Working papers 96-30, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. repec:cup:cbooks:9780521480505 is not listed on IDEAS
  4. Williamson, Oliver E, 1983. "Credible Commitments: Using Hostages to Support Exchange," American Economic Review, American Economic Association, vol. 73(4), pages 519-40, September.
  5. Roland, Gérard & Verdier, Thierry, 1997. "Transition and the Output Fall," CEPR Discussion Papers 1636, C.E.P.R. Discussion Papers.
  6. Marin, Dalia & Schnitzer, Monika, 2002. "The economic institution of international barter," Munich Reprints in Economics 19260, University of Munich, Department of Economics.
  7. 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.
  8. Banerjee, Abhijit V & Maskin, Eric S, 1996. "A Walrasian Theory of Money and Barter," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 955-1005, November.
  9. Perotti, E. C., 1998. "Inertial credit and opportunistic arrears in transition," European Economic Review, Elsevier, vol. 42(9), pages 1703-1725, November.
  10. Marin, Dalia & Schnitzer, Monika, 2003. "Creating creditworthiness through reciprocal trade," Munich Reprints in Economics 19259, University of Munich, Department of Economics.
  11. 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, vol. 107(3), pages 889-906, August.
  12. Abhijit V. Banerjee & Eric S. Maskin, 1996. "A Walrasian Theory of Money," Harvard Institute of Economic Research Working Papers 1753, Harvard - Institute of Economic Research.
  13. Simon Johnson & John McMillan & Christopher Woodruff, 1999. "Contract Enforcement in Transition," CESifo Working Paper Series 211, CESifo Group Munich.
  14. 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, vol. 10(1), pages 173-200, March.
  15. Canice Prendergast & Lars Stole, 2001. "Barter, Liquidity and Market Segmentation," CESifo Working Paper Series 586, CESifo Group Munich.
  16. Dalia Marin & Monika Schnitzer, 2002. "Contracts in Trade and Transition: The Resurgence of Barter," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262133997, June.
  17. 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 0004, Centre for Economic Reform and Transformation, Heriot Watt University.
  18. Marin, Dalia & Schnitzer, Monika, 1995. "Tying Trade Flows: A Theory of Countertrade with Evidence," American Economic Review, American Economic Association, vol. 85(5), pages 1047-64, December.
  19. Guillermo A. Calvo & Fabrizio Coricelli, 1993. "Output Collapse in Eastern Europe: The Role of Credit," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 32-52, March.
  20. Ickes, B.W. & Ryterman, R., 1993. "Roadblock to Economic Reform: Inter-Enterprise Debt and the Transition to Markets," Papers 2-93-1, Pennsylvania State - Department of Economics.
  21. J. Rostowski, 1993. "The inter-enterprise debt explosion in the former Soviet Union: causes, consequences, cures," LSE Research Online Documents on Economics 20968, London School of Economics and Political Science, LSE Library.
  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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