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.