A situation where trade between any two countries has to balance, or any imbalance has to be financed by credits arranged directly between the two countries. This is contrasted with multilateral trade, which requires only that trade with all other countries combined should either balance, or be financed by overall credit from other countries. Bilateral trade has the disadvantages of barter at the national level. It is more efficient to be able to run surpluses with some trade partners and deficits with others, and to be able to finance any overall surplus or deficit with loans to or from any other country. For a country with a convertible currency, bilateral surpluses or deficits on either current or capital account are of no importance; only overall or multilateral balances matter. Bilateral trade can be defended only as a second-best arrangement that is better than no trade at all in situations where the institutions that make multilateral trade possible have broken down.

• savings function
• Say's law
• scale
• scarce currency clause
• scarcity
• scatter diagram
• scenario
• Schedule A tax
• scope, economies of
• screening
• scrip issue
• SDR
• SEAQ
• search unemployment
• seasonal adjustment
• seasonal unemployment
• SEC
• secondary market
• second-best
• second-degree price discrimination
• second derivative
• second-hand
• second-order conditions
• second order of magnitude
• sector