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Relation-based versus Rule-based Governance: an Explanation of the East Asian Miracle and Asian Crisis

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  • John Shuhe Li

Abstract

The paper aims to establish a theory of relation-based governance to explain both the "East Asian miracle" and the Asian crisis. The author first defines "relation" and "relation-based governance" in terms of information and enforcement, and then analyzes the nature and dynamics of relation-based governance, comparing its benefits and costs with that of "rule-based governance" in terms of observability/verifiability, commitment, and transaction costs. The theory is applied to examine a particular relation-based governance system-the Japanese model-to explain both the East Asian miracle and the Asian crisis. The framework provides foundations for studies of East Asian catching-up and economic development in general. Copyright Blackwell Publishing Ltd 2003.

Suggested Citation

  • John Shuhe Li, 2003. "Relation-based versus Rule-based Governance: an Explanation of the East Asian Miracle and Asian Crisis," Review of International Economics, Wiley Blackwell, vol. 11(4), pages 651-673, September.
  • Handle: RePEc:bla:reviec:v:11:y:2003:i:4:p:651-673
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    References listed on IDEAS

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    1. Raghuram G. Rajan & Luigi Zingales, 1998. "Which Capitalism? Lessons Form The East Asian Crisis," Journal of Applied Corporate Finance, Morgan Stanley, vol. 11(3), pages 40-48.
    2. Franklin Allen, 1996. "The Future of the Japanese Financial System," Center for Financial Institutions Working Papers 96-56, Wharton School Center for Financial Institutions, University of Pennsylvania.
    3. Marcel Fafchamps, "undated". "Market Emergence, Trust and Reputation," Working Papers 96016, Stanford University, Department of Economics.
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    Cited by:

    1. Fali Huang, 2006. "The Transition from Relational to Legal Contract Enforcement," Working Papers 23-2006, Singapore Management University, School of Economics.
    2. Avinash Dixit, 2007. "Evaluating Recipes for Development Success," World Bank Research Observer, World Bank Group, vol. 22(2), pages 131-157, June.
    3. Li Tan, 2013. "Market-Supporting Institutions, Gild Organisations, and the Industrial Revolution: A Comparative View," Australian Economic History Review, Economic History Society of Australia and New Zealand, vol. 53(3), pages 221-246, November.
    4. Lu Ming & Zhao Chen & Yongqin Wang & Yan Zhang & Yuan Zhang & Changyuan Luo, 2013. "China’s Economic Development," Books, Edward Elgar Publishing, number 14502, April.
    5. repec:cup:jinsec:v:13:y:2017:i:03:p:673-697_00 is not listed on IDEAS
    6. Wilson, Ross, 2016. "Does Governance Cause Growth? Evidence from China," World Development, Elsevier, vol. 79(C), pages 138-151.
    7. Bickenbach Frank & Liu Wan-Hsin, 2012. "Firm characteristics and informal governance of business operations in the Pearl River Delta, China," Zeitschrift für Wirtschaftsgeographie, De Gruyter, vol. 56(1-2), pages 25-42, October.
    8. Deval Desai & Michael Woolcock, 2012. "The politics of rule of law systems in developmental states: 'political settlements' as a basis for promoting effective justice institutions for marginalized groups," Global Development Institute Working Paper Series esid-008-12, GDI, The University of Manchester.
    9. Korkut Alp Ertürk, 2011. "Governance and Asymmetric Power," Chapters,in: Does Economic Governance Matter?, chapter 2 Edward Elgar Publishing.
    10. Belloc Marianna, 2009. "Cross-Cultural Trade and Institutional Stability," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-25, October.
    11. Bickenbach, Frank & Liu, Wan-Hsin, 2011. "Firm characteristics and informal governance of business operations in the PRD, China," Kiel Working Papers 1728, Kiel Institute for the World Economy (IfW).
    12. Bickenbach, Frank & Liu, Wan-Hsin, 2010. "The role of personal relationships for doing business in the GPRD, China: evidence from Hong Kong electronics SMEs," Kiel Working Papers 1589, Kiel Institute for the World Economy (IfW).
    13. repec:spr:manint:v:50:y:2010:i:5:d:10.1007_s11575-010-0049-9 is not listed on IDEAS
    14. Francois, Patrick, 2008. "Norms and Institution Formation," CEPR Discussion Papers 6735, C.E.P.R. Discussion Papers.
    15. Mazumdar, Surajit, 2008. "Crony Capitalism: Caricature or Category?," MPRA Paper 19626, University Library of Munich, Germany.
    16. Jihong Liu & Yaping Wang & Liansheng Wu, 2011. "The Effect of Guanxi on Audit Quality in China," Journal of Business Ethics, Springer, vol. 103(4), pages 621-638, November.
    17. Ma, Debin, 2009. "Law and economic change in traditional China: a comparative perspective," Economic History Working Papers 27872, London School of Economics and Political Science, Department of Economic History.
    18. Belloc, Marianna, 2005. "Cross-Cultural Trade and Internal Institutional Stability," Department of Economics, Working Paper Series qt1wj7v0sn, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    19. Ferrali, Romain, 2012. "The Maghribi industrialists: contract enforcement in the Moroccan industry, 1956-82," Economic History Working Papers 45680, London School of Economics and Political Science, Department of Economic History.
    20. Min, Byung-Seong, 2013. "Evaluation of board reforms: An examination of the appointment of outside directors," Journal of the Japanese and International Economies, Elsevier, vol. 29(C), pages 21-43.
    21. Wilson, Ross, 2015. "Does Governance Cause Growth? Evidence from China," Working Papers 2015:14, Lund University, Department of Economics.
    22. Jain, Tarun & Sood, Ashima, 2017. "How does relationship-based governance accommodate new entrants? Evidence from the cycle-rickshaw rental market," Journal of Institutional Economics, Cambridge University Press, vol. 13(03), pages 673-697, September.
    23. Anne Margarian, 2013. "A Constructive Critique of the Endogenous Development Approach in the European Support of Rural Areas," Growth and Change, Wiley Blackwell, vol. 44(1), pages 1-29, March.

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