Countertrade, a transaction costs approach

Graduation date: 1988New types of exchange arrangements are becoming\ud increasingly popular for a wide range of goods traded\ud internationally. Several types of countertrade\ud arrangements have been identified, ranging from pure\ud barter to more elaborate schemes where only a portion of\ud the trade is "paid for" in goods, including bilateral\ud trading agreements with clearing arrangements and those\ud with arrangements for partial or total compensation in\ud goods.\ud The economic feasibility of these arrangements has\ud been questioned by a number of economists as well as by\ud government officials. In this paper a partial equilibrium\ud model of exchange is developed that incorporates\ud countertrade by focusing on the transaction costs\ud associated with various types of trading arrangements.\ud The role of transaction costs in determining the types of\ud trading arrangements that emerge when exchange is not\ud costless is examined. The model is presented graphically\ud and mathematically.\ud The effect of changes in demand and in the levels of\ud transaction costs on the shares of trade accounted for by\ud cash, credit and countertrade are examined. Several\ud testable hypotheses emerge from this discussion.\ud The hypothesis that the share of trade accounted for\ud by countertrade increases when the unit cost of credit\ud transaction services increases is tested. Correlation\ud coefficients are calculated for countertrade shares of\ud trade for several products and sales agreements versus\ud hard currency debt, the current account deficit, net\ud external borrowing and the current account balance. All\ud product categories examined except minerals and metals\ud support the hypothesis