Tying in international trade: evidence on countertrade

This paper provides an empirical analysis of countertrade based on 230 transactions whose details were collected from trading houses and firms involved in countertrade. Section 2 describes the data base and states the stylised facts of countertrade that need to be explained. Section 3 gives a critical review of the most frequent explanations of countertrade and confronts them with the data. In section 4 I examine whether evidence of the theoretical gains from tying trade flows can be found in the data. The potential gains from tying considered in this section are those generated by restoring price flexibility in the presence of some market distortions, and those generated by preventing contractual hazards associated with information asymmetry and ex-post bilateral monopoly. Section 5 discusses the implications of the findings of the paper for trade policy and the GATT. -Author