Inter-Firm Relationships and Informal Credit in Vietnam

John McMillan and Christopher Woodruff

No 2036, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Trading relations in Vietnam's emerging private sector are shaped by two market frictions: the difficulty of locating trading partners and the absence of legal enforcement of contracts. Examining relational contracting, we find that a firm trusts its customer enough to offer credit when the customer faces high costs of finding an alternative supplier. A longer duration of trading relationship is associated with larger credit, as is prior information gathering. Customers identified through business networks receive more credit. These network effects are enduring, suggesting that networks are used to sanction defaulting customers.

Keywords: Networks; Trade Credit; Vietnam (search for similar items in EconPapers)
JEL-codes: D23 K12 P31 (search for similar items in EconPapers)
Date: 1998-12
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Interfirm Relationships and Informal Credit in Vietnam (1999)
Working Paper: Interfirm Relationships and Informal Credit in Vietnam (1998)
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