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Barter and Non-Monetary Transactions in Transition Economies: Evidence from a Cross-Country Survey

  • Wendy Carlin
  • Steven Fries
  • Mark Schaffer
  • Paul Seabright

This paper reports the findings of a survey of more than 3,000 firms in 20 transition countries. It shows that barter and other non-monetary transactions (including the use of bills of exchange, debt swaps, barter chains, and the redemption of debt in goods) are an important phenomenon in Russia and Ukraine. Contrary to what is commonly believed they are not negligible in Central and Eastern Europe. The causes and consequences vary significantly between countries, but several conclusions emerge strongly. First, barter and other non-monetary transactions are associated in all countries with financing difficulties for firms. They appear to be helping to assure liquidity in an environment in which contract enforcement (including tax enforcement) is uncertain. Secondly, the use of these mechanisms is not significantly related to the restructuring and performance of firms that use them in most countries except Russia. Thirdly, in Russia and Ukraine the nature of non-monetary transacting is importantly different from elsewhere. It is much more associated than elsewhere with market power and limited trading networks. It is also more costly in terms of restructuring and performance. Firms that barter are less likely to improve their existing products, probably because barter enables them to dispose of otherwise unsaleable goods. They are also more likely to engage in internal reorganisation of a kind designed purely to service existing barter chains. Internal reorganisation is strongly associated with improved performance for firms that do not barter, but is unrelated to performance for firms that do. Overall, in Russia and to a lesser extent in Ukraine (but not elsewhere) the findings are consistent with the hypothesis that economic disorganisation, in the sense of Blanchard & Kremer (1997), means that barter and other non-monetary transactions are both more likely to occur and more damaging when they do occur.

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File URL: http://www.sml.hw.ac.uk/downloads/cert/wpa/2000/dp0004.pdf
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Paper provided by Centre for Economic Reform and Transformation, Heriot Watt University in its series CERT Discussion Papers with number 0004.

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Date of creation: 2000
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Handle: RePEc:hwe:certdp:0004
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  1. Blanchard, Olivier & Kremer, Michael, 1997. "Disorganization," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1091-1126, November.
  2. Kranton, Rachel E, 1996. "Reciprocal Exchange: A Self-Sustaining System," American Economic Review, American Economic Association, vol. 86(4), pages 830-51, September.
  3. Marin, Dalia & Schnitzer, Monika, 2005. "Disorganization and financial collapse," Munich Reprints in Economics 19258, University of Munich, Department of Economics.
  4. Prendergast, Canice & Stole, Lars, 2000. "Barter relationships," MPRA Paper 33400, University Library of Munich, Germany.
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