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Relationships and Growth: On the Dynamic Interplay between Relational Contracts and Competitive Markets in Economic Development

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  • Shingo Ishiguro

Abstract

This article presents a dynamic general equilibrium model to investigate how different contracting modes based on formal and relational enforcements emerge endogenously and are linked dynamically with the process of economic development. Formal contracts are enforced by third-party institutions (courts), whereas relational contracts are self-enforcing agreements without third-party involvement. The novel feature of our model is that it demonstrates the co-evolution of these different enforcement modes and market equilibrium conditions, all of which are jointly determined. We then characterize the equilibrium paths of such dynamic processes and show the time structure of relational contracting in the process of development. In particular, we show that relational contracting fosters the emergence of a market-based economy in the growth phase of development; however, its role declines as the economy enters a mature phase.

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  • Shingo Ishiguro, 2016. "Relationships and Growth: On the Dynamic Interplay between Relational Contracts and Competitive Markets in Economic Development," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 83(2), pages 629-657.
    • Handle: RePEc:oup:restud:v:83:y:2016:i:2:p:629-657.
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    File URL: http://hdl.handle.net/10.1093/restud/rdv041
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    Cited by:

    1. Nakabayashi, Masaki, 2019. "From family security to the welfare state: Path dependency of social security on the difference in legal origins," Economic Modelling, Elsevier, vol. 82(C), pages 280-293.
    2. Xie, Dongshui & Bai, Caiquan & Zhang, Yuwei, 2023. "Relation-based governance, financial crisis shock, and economic growth in China," Economic Modelling, Elsevier, vol. 129(C).
    3. Dongshui Xie & Caiquan Bai & Weiwei Xiao, 2022. "Institutional environment, development model transformation and North–South economic disparity in China," Growth and Change, Wiley Blackwell, vol. 53(4), pages 1877-1906, December.

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