DP1185 Creating Creditworthiness through Reciprocal Trade
|Author(s):||Dalia Marin, Monika Schnitzer|
|Publication Date:||May 1995|
|Keyword(s):||Countertrade, Creditworthiness, Sovereign Debt|
|JEL(s):||F13, F34, L14|
|Programme Areas:||International Trade and Regional Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=1185|
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.