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Formal and Informal Institutions in a Transition Economy: The Case of Vietnam

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  • Steer, Liesbet
  • Sen, Kunal

Abstract

Summary We examine the role of informal and formal institutions behind the growth of private sector in Vietnam since the official recognition of private enterprises in the early 1990s. We show that firms have increasingly taken on risks in their transactions in spite of weak formal institutions. Risk-taking by firms can be explained by the use of informal institutions such as relational contracts and networks along with recourse to emerging formal institutions such as written contracts. Our results suggest that informal institutions remain important as mechanisms of risk management even as the economy matures and new formal institutions gradually develop.

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Bibliographic Info

Article provided by Elsevier in its journal World Development.

Volume (Year): 38 (2010)
Issue (Month): 11 (November)
Pages: 1603-1615

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Handle: RePEc:eee:wdevel:v:38:y:2010:i:11:p:1603-1615

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

Related research

Keywords: institutions private sector transactions risk Vietnam;

References

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  1. Avinash Dixit, 2009. "Governance Institutions and Economic Activity," American Economic Review, American Economic Association, vol. 99(1), pages 5-24, March.
  2. Dani Rodrik, 2007. "Introductiion to One Economics, Many Recipes: Globalization, Institutions, and Economic Growth
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  3. Hendley, Kathryn & Murrell, Peter, 2003. "Which mechanisms support the fulfillment of sales agreements?: Asking decision-makers in firms," Economics Letters, Elsevier, vol. 78(1), pages 49-54, January.
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  6. 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.
  7. Daniel Kaufmann & Aart Kraay, 2002. "Growth without Governance," JOURNAL OF LACEA ECONOMIA, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
  8. John McMillan & Christopher Woodruff, 1998. "Interfirm Relationships and Informal Credit in Vietnam," William Davidson Institute Working Papers Series 132, William Davidson Institute at the University of Michigan.
  9. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August.
  10. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 83-116, February.
  11. Woodruff, Christopher, 1998. "Contract enforcement and trade liberalization in Mexico's footwear industry," World Development, Elsevier, vol. 26(6), pages 979-991, June.
  12. Stoyan Tenev & Amanda Carlier & Omar Chaudry & Quynh-Trang Nguyen, 2003. "Informality and the Playing Field in Vietnam's Business Sector," World Bank Publications, The World Bank, number 15084, October.
  13. Henrik Hansen & John Rand & Finn Tarp, 2009. "Enterprise Growth and Survival in Vietnam: Does Government Support Matter?," Journal of Development Studies, Taylor & Francis Journals, vol. 45(7), pages 1048-1069.
  14. Lyons, Bruce R, 1994. "Contracts and Specific Investment: An Empirical Test of Transaction Cost Theory," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(2), pages 257-78, Summer.
  15. Steer, Liesbet & Taussig, Markus, 2002. "A little engine that could: domestic private companies and Vietnam?s pressing need for wage employment," Policy Research Working Paper Series 2873, The World Bank.
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Cited by:
  1. Berulava, George, 2013. "Do Trust-Based Relations Improve Firm’s Performance? Evidence from Transition Economies," MPRA Paper 48430, University Library of Munich, Germany.

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