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Title: Inter-Firm Relationships and Informal Credit in Vietnam

Author(s): John McMillan and Christopher Woodruff

Publication Date: December 1998

Keyword(s): Networks, Trade Credit and Vietnam

Programme Area(s): Industrial Organization and Transition Economics

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.

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Bibliographic Reference

McMillan, J and Woodruff, C. 1998. 'Inter-Firm Relationships and Informal Credit in Vietnam'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2036