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

Author

Listed:
  • 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.

Suggested Citation

  • Marcus Noland & Stephan Haggard, 2012. "Networks, Trust, and Trade: The Microeconomics of China–North Korea Integration," Working Paper Series WP12-8, Peterson Institute for International Economics.
  • Handle: RePEc:iie:wpaper:wp12-8
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Stephan Haggard & Marcus Noland, 2012. "The Microeconomics of North--South Korean Cross-border Integration," International Economic Journal, Taylor & Francis Journals, vol. 26(3), pages 407-430, September.
    2. Marcus Noland, 2014. "Going Beyond Economic Engagement: Why South Korea Should Press the North on Labor Standards and Practices," Policy Briefs PB14-12, Peterson Institute for International Economics.

    More about this item

    Keywords

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

    JEL classification:

    • P33 - Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid
    • P25 - Economic Systems - - Socialist Systems and Transition Economies - - - Urban, Rural, and Regional Economics
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • F15 - International Economics - - Trade - - - Economic Integration

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