Networks, Trust, and Trade: The Microeconomics of China–North Korea Integration
AbstractA central hope of engagement with North Korea is that increased cross-border exchange will encourage the strengthening of institutions, and eventually, a moderation of the country’s foreign policy. An unprecedented survey of Chinese enterprises operating in North Korea reveals that trade is largely dominated by state entities on the North Korean side, although the authors cannot rule out de facto privatization of exchange. Little trust is evident beyond the relationships among Chinese and North Korean state-owned enterprises. Formal networks and dispute settlement mechanisms are weak and do not appear to have consequences for relational contracting. Rather, firms rely on personal ties for identifying counterparties and resolving disputes. The weakness of formal institutions implies that the growth in exchange does not conform with the expectations of the engagement model and may prove self-limiting. The results also cast doubt that integration between China and North Korea, at least as it is currently proceeding, will foster reform and opening.
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Bibliographic InfoPaper provided by Peterson Institute for International Economics in its series Working Paper Series with number WP12-8.
Date of creation: May 2012
Date of revision:
trust; relational contracting; economic integration; institutions; China; North Korea;
Find related papers by JEL classification:
- P33 - Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Business, and Aid
- P25 - Economic Systems - - Socialist Systems and Transition Economies - - - Urban, Rural, and Regional Economics
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- F15 - International Economics - - Trade - - - Economic Integration
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-29 (All new papers)
- NEP-SOC-2012-05-29 (Social Norms & Social Capital)
- NEP-TRA-2012-05-29 (Transition Economics)
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