Abstract:
New types of exchange arrangements are becoming
increasingly popular for a wide range of goods traded
internationally. Several types of countertrade
arrangements have been identified, ranging from pure
barter to more elaborate schemes where only a portion of
the trade is "paid for" in goods, including bilateral
trading agreements with clearing arrangements and those
with arrangements for partial or total compensation in
goods.
The economic feasibility of these arrangements has
been questioned by a number of economists as well as by
government officials. In this paper a partial equilibrium
model of exchange is developed that incorporates
countertrade by focusing on the transaction costs
associated with various types of trading arrangements.
The role of transaction costs in determining the types of
trading arrangements that emerge when exchange is not
costless is examined. The model is presented graphically
and mathematically.
The effect of changes in demand and in the levels of
transaction costs on the shares of trade accounted for by
cash, credit and countertrade are examined. Several
testable hypotheses emerge from this discussion.
The hypothesis that the share of trade accounted for
by countertrade increases when the unit cost of credit
transaction services increases is tested. Correlation
coefficients are calculated for countertrade shares of
trade for several products and sales agreements versus
hard currency debt, the current account deficit, net
external borrowing and the current account balance. All
product categories examined except minerals and metals
support the hypothesis.
