Countertrade and the choice of strategic trading form

Reciprocal trade agreements, usually known under the generic name of countertrade (CT) have been traditionally seen as a form of bilateralism, and thus as an inefficient form of international exchange. Although contemporary trade theories do not fully explain the increasing prevalence of CT transactions, we will argue that it is possible to construct and use a third (hybrid) institutional form, which is congruent with the transaction-cost theories, and we will show how — under market imperfections — countertrade can reduce transaction costs while conserving the efficiency gains generated by these specific arrangements.Publicad

The assessment of credit guarantee schemes for SME's: valuation and cost

Small and medium enterprises (SME' s) have important limitations from the financial viewpoint. Their reduced capability to generate resources (self-financing) and their high financial costs as compared to the profitability of investments, makes them highly dependent of short-term bank financing. Among the different mechanisms used to solve these financial problems we find credit guarantee schemes as the Loan Guarantee Associations (LGA). These (mutual or government granted) credit insurance systems were set to facilitate the access of SME ' s to the credit market covering part of the loss incurred when borrowers default on a loan. In spite of some legal differences, LGA in most European Union countries function in a fairly similar way, making therefore easier to compare their operational cost and impact on business. This study provides a model for the valuation of the costs and implicit benefits associated with the loan guarantee programs. Empirical results indicate that the use of LGA is likely to differ among SME' s depending on company size and debt financial cost. The relatively high cost of the loan guarantee, is not always fully compensated with a similar reduction of the interest rates of the financing entity, hindering, in many cases, the full development of the schemes

Countertrade and the choice of strategic trading form.

Reciprocal trade agreements, usually known under the generic name of countertrade (CT) have been traditionally seen as a form of bilateralism, and thus as an inefficient form of international exchange. Although contemporary trade theories do not fully explain the increasing prevalence of CT transactions, we will argue that it is possible to construct and use a third (hybrid) institutional form, which is congruent with the transaction-cost theories, and we will show how — under market imperfections — countertrade can reduce transaction costs while conserving the efficiency gains generated by these specific arrangements.Barter; countertrade; transaction cost theory; asymmetric information; trading strategies;

Why corrupt governments may receive more foreign aid

In this paper we argue that if the cross-country heterogeneity in productivity is more important than the heterogeneity in government quality, it can be optimal to give more foreign aid to more corrupt countries. We build a multi-country model of optimal aid in which we disentangle the correlation between aid and equilibrium corruption into two components: the first one reflects variations in the quality of institutions and the second encompasses variations in productivity levels. The data suggest that both components of the correlation are significant, however the effect of variations in productivity levels is stronger. This implies that most corrupt countries, since they are also the poorest, receive higher amounts of foreign aid.corruption, aid, government spending, institutions

Democracy, rule of law, corruption incentives and growth

We bridge the gap between the standard theory of growth and the mostly static theory of corruption. Some public investment can be diverted from its purpose by corrupt individuals. Voters determine the level of public investment subject to an incentive constraint equalizing the returns from productive and corrupt activities. We concentrate on two exogenous institutional parameters: the "technology of corruption" is the ease with which rent-seekers can capture a proportion of public spending. The "concentration of political power" is the extent to which rent-seekers have more political influence than other people. One theoretical prediction is that the effects of the two institutional parameters on income growth and equilibrium corruption are different according to the constraints that are binding at equilibrium. In particular, the effect of judicial quality on growth should be stronger when political power is concentrated. We estimate a system of equations where both corruption and income growth are determined simultaneously and show that income growth is more affected by our proxies for legal and political institutions in countries where political rights and judicial institutions respectively are limited.economic growth, corruption, rule of law, incentive constraint, political power

Growth, Public Investment and Corruption with Failing Institutions

Corruption is thought to prevent poor countries from catching-up. We analyze one channel through which corruption hampers growth: public investment can be distorted in favor of specific types of spending for which rent-seeking is easier and better concealed. To study this distortion, we propose an optimal growth model where households vote for the composition of public spending subject to an incentive constraint reflecting individuals’ choice between productive activity and rent-seeking. At equilibrium, the intensity of corruption and the structure of public investment are determined by the predatory technology and the distribution of political power. Among different regimes, the model shows a possible scenario of distortion without corruption in which there is no effective corruption yet still the possibility of corruption distorts the allocation of public investment, thus hampering growth. We test the implications of the model on a panel of countries estimating a system of equations with instrumental variables. We find that countries with a high predatory technology invest more in housing and physical capital in comparison with health and education. For equal initial conditions, such countries grow slower and have higher corruption, in particular when political power is concentratedPublic investment, optimal growth, corruption, political power.

Democracy, rule of law, corruption incentives and growth

We bridge the gap between the standard theory of growth and the mostly static theory of corruption. Some public investment can be diverted from its purpose by corrupt individuals. Voters determine the level of public investment subject to an incentive constraint equalizing the returns from productive and corrupt activities. We concentrate on two exogenous institutional parameters : the “technology of corruption” is the ease with which rent-seekers can capture a proportion of public spending. The “concentration of political power” is the extent to which rent-seekers have more political influence than other people. One theoretical prediction is that the effects of the two institutional parameters on income growth and equilibrium corruption are different according to the constraints that are binding at equilibrium. In particular, the effect of judicial quality on growth should be stronger when political power is concentrated. We estimate a system of equations where both corruption and incime growth are determined simultaneously and show that income growth is more affected by our proxies for legal and politiccal institutions in countries where political rights and judicial institutions respectively are limited.economic growth, corruption, rule of law, incentive constraint, political power

Growth, public investment and corruption with failing institutions

Corruption is thought to prevent poor countries from catching up with richer ones. We analyze one channel through which corruption hampers growth : public investment can be distorted in favor of specific types of spending for which rent-seeking is easier and better concealed. To study this distorsion, we propose a dynamic model where households vote for the composition of public spending, subject to an incentive constraint reflecting individuals' choice between productive activity and rent-seeking. In equilibrium, the structure of public investment is determined by the predatory technology and the distribution of political power. Among different regimes, the model shows a possible scenario of distortion without corruption in which there is no effective corruption but the possibility of corruption still distorts the allocation of public investment. We test the implications of the model on a set of countries using a two-stage least squares estimation. We find that developing countries with high predatory technology invest more in housing and physical capital in comparison with health and education. The reverse is true for developed countries.Public investment, optimal growth, corruption, political power.