Countertrade Transactions: Theory and Evidence

• Published in: The Economic journal (London) Vol. 102; no. 414; pp. 1171 - 1183
• Main Authors: Caves, R. E., Marin, D.
• Format: Journal Article
• Language: English
• Published: Cambridge Blackwell Journals 01.09.1992; Cambridge University Press; Oxford University Press
• Subjects: Bartering; Coefficients; Countertrade; Developing countries; Discounts; Disequilibrium; Economic competition; Economic models; Economic theory; Economics; Exporters; Goods; Hypotheses; International trade; LDCs; Price discrimination; Regression analysis; Statistical significance; Technical standards; Terms of trade
• ISSN: 0013-0133; 1468-0297
• DOI: 10.2307/2234384

Findings from a sample of 230 countertrade agreements are presented. An analytical framework is developed that both explains the mutual attraction of countertrade deals to the parties and predicts the terms of trade in individual transactions. Various statistical tests serve to assess assumptions underlying the model, evaluate various predictions and corollaries, and distinguish between certain competing hypotheses about the motives or effects of countertrade transactions. Several findings support the price-discrimination model, which is really enveloped by a more general model of countertrade as a device to bargain with an exporter that asks a price higher than its marginal cost. This model is well supported, with the exporters' ability to insist on their asking prices and the partners' ability to demand concessions increasing with each party's market concentration and market dominance. However, the evidence does not associate countertrade with short-run disequilibria in sticky-price markets.