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Integration in the absence of institutions: China–North Korea cross-border exchange

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  • Haggard, Stephan
  • Lee, Jennifer
  • Noland, Marcus

Abstract

Theory tells us that weak rule of law and institutions deter cross-border integration, deter investment relative to trade, and inhibit trade finance. Drawing on a survey of more than 300 Chinese enterprises that are doing or have done business in North Korea, we consider how informal institutions have addressed these problems in a setting in which rule of law and institutions are particularly weak. Given the apparent reliance on hedging strategies, the rapid growth in exchange witnessed in recent years may prove self-limiting, as the effectiveness of informal institutions erode and the risk premium rises. Institutional improvement could have significant welfare implications, affecting the volume, composition, and financial terms of cross-border exchange.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Asian Economics.

Volume (Year): 23 (2012)
Issue (Month): 2 ()
Pages: 130-145

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Handle: RePEc:eee:asieco:v:23:y:2012:i:2:p:130-145

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Web page: http://www.elsevier.com/locate/asieco

Related research

Keywords: Economic integration; Property rights; Institutions; Transition; China; North Korea;

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References

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  1. Lin, Feng-Jyh, 2010. "The determinants of foreign direct investment in China: The case of Taiwanese firms in the IT industry," Journal of Business Research, Elsevier, vol. 63(5), pages 479-485, May.
  2. John McMillan & Christopher Woodruff, 1999. "Interfirm Relationships And Informal Credit In Vietnam," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1285-1320, November.
  3. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-48, June.
  4. James E. Anderson & Douglas Marcouiller, S.J., 1999. "Insecurity and the Pattern of Trade: An Empirical Investigation," Boston College Working Papers in Economics 418, Boston College Department of Economics, revised 03 Aug 2000.
  5. Stephan Haggard & Marcus Noland, 2009. "Reform from Below: Behavioral and Institutional Change in North Korea," Working Paper Series WP09-8, Peterson Institute for International Economics.
  6. Shang-Jin Wei, 1997. "How Taxing is Corruption on International Investors?," NBER Working Papers 6030, National Bureau of Economic Research, Inc.
  7. Stephan Haggard & Marcus Noland, 2008. "Famine in North Korea Redux?," Economics Study Area Working Papers 97, East-West Center, Economics Study Area.
  8. Stephan Haggard & Marcus Noland, 2010. "The Winter of Their Discontent: Pyongyang Attacks the Market," Policy Briefs PB10-1, Peterson Institute for International Economics.
  9. Greif, Avner & Milgrom, Paul & Weingast, Barry R, 1994. "Coordination, Commitment, and Enforcement: The Case of the Merchant Guild," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 745-76, August.
  10. Clay, Karen, 1997. "Trade without Law: Private-Order Institutions in Mexican California," Journal of Law, Economics and Organization, Oxford University Press, vol. 13(1), pages 202-31, April.
  11. Paul R. Milgrom & Douglass C. North & Barry R. Weingast, 1990. "The Role Of Institutions In The Revival Of Trade: The Law Merchant, Private Judges, And The Champagne Fairs," Economics and Politics, Wiley Blackwell, vol. 2(1), pages 1-23, 03.
  12. Clay, Karen, 1997. "Trade, Institutions, and Credit," Explorations in Economic History, Elsevier, vol. 34(4), pages 495-521, October.
  13. McMillan, John & Woodruff, Christopher, 1999. "Dispute Prevention without Courts in Vietnam," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(3), pages 637-58, October.
  14. Marcus Noland & Stephan Haggard, 2011. "Witness to Transformation: Refugee Insights into North Korea," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 4389.
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Cited by:
  1. Marcus Noland & Stephan Haggard, 2012. "Networks, Trust, and Trade: The Microeconomics of China–North Korea Integration," Working Paper Series WP12-8, Peterson Institute for International Economics.
  2. Stephan Haggard & Marcus Noland, 2012. "The Microeconomics of North--South Korean Cross-border Integration," International Economic Journal, Taylor & Francis Journals, vol. 26(3), pages 407-430, September.

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