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

  • Marcus Noland

    ()

    (Peterson Institute for International Economics)

  • Stephan Haggard

    ()

    (University of California, San Diego Graduate School of International Relations and Pacific Studies)

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.

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Paper provided by Peterson Institute for International Economics in its series Working Paper Series with number WP12-8.

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Date of creation: May 2012
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Handle: RePEc:iie:wpaper:wp12-8
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