A General Equilibrium Approach to Interenterprise Arrears in Transition Economies with Application to Russia

December 1, 1995

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Goohoon Kwon, and Se-Jik Kim. A General Equilibrium Approach to Interenterprise Arrears in Transition Economies with Application to Russia, (USA: International Monetary Fund, 1995) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper presents a general equilibrium model of interenterprise arrears, characterized by n-stage production technology with random productivity shocks. The model shows that large interenterprise arrears in transition economies may reflect substantial business risks in those countries and that rapid privatization and commercialization may contribute to a huge initial accumulation of trade credits and arrears. The paper also suggests that administrative measures aimed at immediate reduction of IEA such as imposition of prepayments and penalty charges, would not be as effective as partial equilibrium frameworks suggest. Consequently, a fundamental solution should be sought instead in reducing business risks or improving enterprise information. Finally, the paper discusses the relevance of the model to Russian experience in 1993 and 1994.

Subject: Arrears, Econometric analysis, Economic sectors, External debt, General equilibrium models, Monetary base, Money, Privatization, Trade credits

Keywords: Arrears, Buyer firm, Ceratin firm, Construction company, Enterprise manager, General equilibrium models, Monetary base, Money stock, Privatization, Profit-maximizing enterprise, Seller firm, Trade credit, Trade credits, Utility function, WP

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1995/145
Stock No:

WPIEA1451995
ISBN:

9781451856491
ISSN:

1018-5941

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