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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.

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
    DOI: 10.1111/1467-9396.00409
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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, September.
    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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