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Interfirm Relationships and Informal Credit in Vietnam

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  • John McMillan
  • Christopher Woodruff

Abstract

Trading relations in Vietnam's emerging private sector are shaped by two market frictions: the difficulty of locating trading partners and the absence of legal enforcement of contracts. Examining relational contracting, we find that a firm trusts its customer enough to offer credit when the customer finds it hard to locate an alternative supplier.A longer duration of trading relationship is associated with larger credit, as is prior information gathering. Customers identified through business networks receive more credit. These network effects are enduring, suggesting that networks are used to sanction defaulting customers. © 2000 the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp132.pdf
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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 132.

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Length: pages
Date of creation: 01 Feb 1998
Date of revision:
Handle: RePEc:wdi:papers:1998-132

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