Working Paper: CEPR ID: DP1185
Authors: Dalia Marin; Monika Schnitzer
Abstract: In the aftermath of the international debt crisis of the 1980s reciprocal trade arrangements experienced a resurgence. This paper examines how countertrade can help highly indebted countries to finance imports if they are not able to use standard credit arrangements. It compares the credit enforcement mechanisms discussed by the sovereign debt literature with those available under countertrade agreements and shows under what conditions countertrade can increase the debt capacity of highly indebted countries. The implications of our model for the design of optimal countertrade contracts are consistent with empirical evidence from a data set of 230 countertrade transactions.
Keywords: countertrade; sovereign debt; creditworthiness
JEL Codes: F13; F34; L14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Countertrade (L14) | Increased creditworthiness (G51) |
| Countertrade (L14) | Increased debt capacity (G32) |
| Countertrade agreements (F13) | Priority rights on goods (P14) |
| Priority rights on goods (P14) | Recovery feasibility (O22) |
| Countertrade agreements (F13) | Collateral generated (G19) |
| Collateral generated (G19) | Enforce repayment obligations (G33) |
| Countertrade (L14) | Improved creditworthiness through repeated interactions (G51) |
| Countertrade agreements (F13) | Better outcomes in repayment likelihood (G51) |