Barter in Transition Economies: Competing Explanations Confront Ukranian Data

Dalia Marin, Daniel Kaufmann and Bogdan Gorochowskij

No 287, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: In this paper we survey the common explanations of barter in transition economies and expose them to detailed survey data on 165 barter deals in Ukraine in 1997. The evidence does not support the notion that soft budget constraints, lack of restructuring, or that the virtual economy are the driving forces behind barter. Further, tax avoidance is only weakly associated with the incidence of barter in Ukraine. We then explore an alternative explanation of barter as a mechanism to address transitional challenges where capital markets and economic institutions are poorly developed. First, barter helps to maintain production by creating a deal-specific collateral which softens the liquidity squeeze in the economy when credit enforcement is prohibitively costly. Second, barter helps to maintain production by preventing firms to be exploited by their input suppliers when suppliers' bargaining position is very strong due to high costs of switching suppliers. Thus, in the absence of trust and functioning capital markets barter is a self-enforcing response to imperfect input and financial markets in the former Soviet Union. The paper concludes by discussing potential long-term costs of barter arrangements, and by suggesting particular pitfalls of expansionary monetary policy in barter economies such as Ukraine and Russia.

Keywords: financial crisis; trust; contract enforcement in transition; arrears; the virtual economy; imperfect capital markets (search for similar items in EconPapers)
Pages: pages
Date: 2000-01-01
New Economics Papers: this item is included in nep-eec and nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp287.pdf
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp287.pdf [302 Found]--> https://wdi.umich.edu/files/Publications/WorkingPapers/wp287.pdf)

Related works:
Working Paper: Barter In Transition Economies: Competing Explanations Confront Ukrainian Data (2000)
Working Paper: Barter in Transition Economies: Competing Explanations Confront Ukrainian Data (2000)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wdi:papers:2000-287

Access Statistics for this paper

More papers in William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan 724 E. University Ave, Wyly Hall 1st Flr, Ann Arbor MI 48109. Contact information at EDIRC.
Bibliographic data for series maintained by WDI ().