Working Paper: CEPR ID: DP946
Authors: Dalia Marin; Monika Schnitzer
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; double moral hazard problem; sovereign debt; technology transfer; creditworthiness
JEL Codes: D23; 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) | mitigate moral hazard problems (G52) |
| countertrade (L14) | restore creditworthiness (G51) |
| countertrade agreements (L14) | collateral that mitigates risk of default (G32) |
| import acts as hostage (Y60) | deter cheating on quality (L15) |
| import (F10) | ensures quality delivery (L15) |
| tying of trade flows (F10) | secure efficient technology spillovers (O36) |
| compensation ratio (J33) | control incentives of both parties (D72) |
| counterpurchase agreements (L14) | mitigate contractual hazards (D86) |
| countertrade (L14) | facilitate trade under specific conditions (F13) |
| countertrade (L14) | play essential role in transition economies (P30) |