Stephan Haggard's Working Paper on China–North Korea Integration
Networks, Trust, and Trade: The Microeconomics of China–North Korea Integration
05/16/2012
Stephan Haggard and Marcus Noland,
Peterson Institute for International Economics
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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Stephan Haggard is the director of the Korea-Pacific Program at IR/PS, where he specializes in the Korean economy. In 2011 Haggard published Witness to Transformation: Refugee Insights into North Korea with co-author Marcus Noland, with whom he had previously authored Famine in North Korea: Markets, Aid, and Reform. Dr. Haggard writes the "North Korea: Witness to Transformation" blog at the Peterson Institute for International Economics.
