Tying Trade Flows: A Theory of Countertrade

Dalia Marin and Monika Schnitzer ()

No 946, CEPR Discussion Papers from Centre for Economic Policy Research

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.

Keywords: Countertrade; Creditworthiness; Double Moral Hazard Problem; Sovereign Debt; Technology Transfer (search for similar items in EconPapers)
JEL-codes: D23 F13 F34 L14 (search for similar items in EconPapers)
Date: 1994-05
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Citations: View citations in EconPapers (2)

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