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Tying Trade Flows: A Theory of Countertrade

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  • Marin, Dalia
  • Schnitzer, Monika

Abstract

A countertrade contract ties an export to an import. Usually, countertrade is seen as a form of bilateralism and reciprocity and thus as an inefficient form of international exchange. In this paper we argue that there are circumstances where the tying of two technologically unrelated trade flows may be efficiency enhancing. We show that countertrade can be seen as an efficient institution that solves moral hazard problems and restores creditworthiness of countries with large outstanding debt. We test the implications of our model using a sample of 230 countertrade contacts.

Suggested Citation

  • Marin, Dalia & Schnitzer, Monika, 1994. "Tying Trade Flows: A Theory of Countertrade," CEPR Discussion Papers 946, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:946
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    References listed on IDEAS

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    1. Svensson, Lars E. O., 1994. "Fixed exchange rates as a means to price stability: What have we learned?," European Economic Review, Elsevier, vol. 38(3-4), pages 447-468, April.
    2. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-162, May.
    3. Bennett T. McCallum, 1989. "Targets, Indicators, and Instruments of Monetary Policy," NBER Working Papers 3047, National Bureau of Economic Research, Inc.
    4. Friedman, Benjamin M., 1990. "Targets and instruments of monetary policy," Handbook of Monetary Economics,in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 22, pages 1185-1230 Elsevier.
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    Citations

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    Cited by:

    1. Barbara Cresti, 2005. "US domestic barter: an empirical investigation," Applied Economics, Taylor & Francis Journals, vol. 37(17), pages 1953-1966.
    2. Ellingsen, Tore, 1998. "Payments in Kind," SSE/EFI Working Paper Series in Economics and Finance 244, Stockholm School of Economics, revised 10 Feb 2000.

    More about this item

    Keywords

    Countertrade; Creditworthiness; Double Moral Hazard Problem; Sovereign Debt; Technology Transfer;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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