A general consensus in the transition economies literature links the existence of enterprise restructuring with the pace of the transition process and the potential for economic growth. The existing literature is less clear, however, about whether the lack of economic growth is caused by the lack of enterprise restructuring. Complicating the debate in Russia is the confusion regarding the role of barter transactions in enterprise restructuring. Much of the confusion is generated by proponents of a “virtual economy ” interpretation of how the Russian economy and Russian enterprise managers operate. This paper dispels much of the confusion about the existence of enterprise restructuring and the corresponding role of barter by demonstrating why the virtual economy model fails to accurately depict economic actions or outcomes in Russia. We develop the argument that barter is closely related to an absence of liquidity in the Russian economy, using both macro-level and micro-level data to document the consequences of “structural illiquidity. ” Our results are unambiguous: both the incidence and volume of barter transactions are inversely related to liquidity. We conclude that analyses using barter transactions as evidence of the lack of enterpris
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