Barter in Transition Economies: Competing Explanations Confront Ukrainian Data

39 Pages Posted: 10 Jun 2000

See all articles by Dalia Marin

Dalia Marin

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Daniel Kaufmann

Natural Resource Governance Institute (NRGI); The Brookings Institution

Bogdan Gorochowskij

Humboldt University of Berlin

Date Written: April 2000

Abstract

In this paper we survey the common explanations of barter in transition economies and expose them to detailed survey data on 165 barter deals in Ukraine in 1997. The evidence does not support the notion that soft budget constraints, lack of restructuring, or that the virtual economy are the driving forces behind barter. Further, tax avoidance is only weakly associated with the incidence of barter in Ukraine. We then explore an alternative explanation of barter as a mechanism to address transitional challenges where capital markets and economic institutions are poorly developed. First, barter helps to maintain production by creating a deal-specific collateral which softens the liquidity squeeze in the economy when credit enforcement is prohibitively costly. Second, barter helps to maintain production by preventing firms being exploited by their input suppliers when the suppliers' bargaining position is very strong due to high costs of switching suppliers. Thus, in the absence of trust and functioning capital markets barter is a self-enforcing response to imperfect input and financial markets in the former Soviet Union. The paper concludes by discussing potential long-term costs of barter arrangements, and by suggesting particular pitfalls of expansionary monetary policy in barter economies such as Ukraine and Russia.

Note: Previous title: "Disorganization, Financial Squeeze, and Barter"

Keywords: contract enforcement in transition, banking failure, trade credit, virtual economy, arrears

JEL Classification: G30, O10, P30, P2, M2, C42, O17

Suggested Citation

Marin, Dalia and Kaufmann, Daniel and Gorochowskij, Bogdan, Barter in Transition Economies: Competing Explanations Confront Ukrainian Data (April 2000). Available at SSRN: https://ssrn.com/abstract=232239 or http://dx.doi.org/10.2139/ssrn.232239

Dalia Marin (Contact Author)

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics ( email )

Ludwigstrasse 28
Munich, D-80539
Germany
+49 89 2180 2446 (Phone)
+49 89 2180 6227 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Daniel Kaufmann

Natural Resource Governance Institute (NRGI) ( email )

80 Broad Street
New York, NY 10004
United States

HOME PAGE: http://www.resourcegovernance.org

The Brookings Institution ( email )

1775 Massachusetts Avenue, NW
Washington, DC 20036
United States

HOME PAGE: http://www.brookings.edu/experts/kaufmannd

Bogdan Gorochowskij

Humboldt University of Berlin

Spandauer Str. 1
Institut fur Staatistik und Okonometrie
D-10178 Berlin
Germany

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