Countertrade: An Evaluation of Existing Hypotheses

Theo Papadopoulos
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Theo Papadopoulos: Department of Applied Economics, Victoria University of Technology, Melbourne

Economic Analysis and Policy, 1993, vol. 23, issue 1, 15-28

Abstract: This paper reviews the range of countertrade activities taking place in international trade and the existing hypotheses that purport to explain their existence. Countertrade may be attractive in the short run in response to some pre-existing market distortion, impediment or disequilibrium. However, unless the countertrade imposed can directly address the distortion then this international transaction mode may prove to be very costly in the long run, if not the short run. This paper concludes that the superiority of countertrade over other transaction modes available in international trade and its efficacy as an economic instrument in circumventing perceived distortions is not clear. Countries that pursue this form of trade policy intervention for industrial development may cause a reduction in national, and perhaps global, welfare.

Date: 1993
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