Law in Transition and Development: The Case of Russia

The rise of barter and non-cash payments has become a dominant
feature of the Russian transition to a market economy. This paper
confronts with empirical evidence two approaches to explain barter
in Russia: the ’illusion view’ and the ’trust view’ of barter. The
’illusion view’ suggests that barter allows the parties to pretend
that the manufacturing sector in Russia is producing value added by
enabling this sector to sell its output at a higher price than its
market value. The ’trust view’ sees barter as an institution to
deal with the absence of trust and liquidity in the Russian
economy. We confront the prediction of both explanations with
actual data on barter in Ukraine in 1997. The data reject the
’illusion view‘ in favor of the ‘trust view‘ of barter.