Creating Creditworthiness through Reciprocal Trade
Ludwig-Maximilians-Universität Munich - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Centre for Economic Policy Research (CEPR)
University of Munich - Department of Economics; Centre for Economic Policy Research (CEPR)
CEPR Discussion Paper No. 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.
Number of Pages in PDF File: 32
Keywords: Countertrade, creditworthiness, sovereign debt
JEL Classification: F13, F34, L14working papers series
Date posted: November 15, 2001
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