Difficulties in contract enforcement impede international transactions in                 the world economy and domestic transactions in transition economies. In Contracts in                 Trade and Transition, Dalia Marin and Monika Schnitzer explain how barter as an                 economic institution can facilitate contract enforcement across national borders in                 international trade and within borders in transition countries. The authors show                 that international countertrade--tying an export to an import--emerged in the 1980s                 in response to the international debt crisis when Western creditors refused to                 finance imports to developing countries and Eastern Europe. Barter--the exchange of                 goods without the use of money--reemerged in transition economies in the 1990s in                 response to a domestic debt crisis when banks in transition countries were reluctant                 to provide finance to firms. Countertrade and barter introduce a deal-specific form                 of collateral that addresses the lack of creditworthiness of countries and                 firms.Drawing on contract theory, the authors argue that parties might want to pay                 in goods rather than cash or link an export with an import as in countertrade to                 solve incentive problems that otherwise would prevent any trade from taking place.                 The incentive problems they discuss are the technology transfer problem to                 developing countries and the "lack of trust" problem in the former Soviet                 Union.

Contracts in Trade and Transition: The Resurgence of Barter PDF

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