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Networks, Trust, and Trade: The Microeconomics of China–North Korea Integration

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  • Marcus Noland

    ()
    (Peterson Institute for International Economics)

  • Stephan Haggard

    ()
    (University of California, San Diego Graduate School of International Relations and Pacific Studies)

Abstract

A 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 Info

Paper provided by Peterson Institute for International Economics in its series Working Paper Series with number WP12-8.

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Date of creation: May 2012
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Handle: RePEc:iie:wpaper:wp12-8

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Keywords: trust; relational contracting; economic integration; institutions; China; North Korea;

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  1. Haggard, Stephan & Lee, Jennifer & Noland, Marcus, 2012. "Integration in the absence of institutions: China–North Korea cross-border exchange," Journal of Asian Economics, Elsevier, vol. 23(2), pages 130-145.
  2. 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.
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  7. James E. Anderson & Douglas Marcouiller, 2002. "Insecurity And The Pattern Of Trade: An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 342-352, May.
  8. 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.
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  11. Simon Johnson & John McMillan & Christopher Woodruff, 1999. "Contract Enforcement in Transition," CESifo Working Paper Series 211, CESifo Group Munich.
  12. Stephan Haggard & Marcus Noland, 2008. "Famine in North Korea Redux?," Economics Study Area Working Papers 97, East-West Center, Economics Study Area.
  13. repec:ags:afjare:141665 is not listed on IDEAS
  14. 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.
  15. Feenstra, Robert C. & Hong, Chang & Ma, Hong & Spencer, Barbara J., 2013. "Contractual versus non-contractual trade: The role of institutions in China," Journal of Economic Behavior & Organization, Elsevier, vol. 94(C), pages 281-294.
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Cited by:
  1. Stephan Haggard & Marcus Noland, 2012. "The Microeconomics of North-South Korean Cross-Border Integration," Working Paper Series WP12-9, Peterson Institute for International Economics.

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