Interfirm Relationships and Informal Credit in Vietnam

By John McMillanChristopher Woodruff
1999| Working Paper No. 1575

Firms routinely rely on other firms’ goodwill. Where a well-functioning legal system exists, in advanced economies, ongoing relationships complement formal contracts in helping deals work smoothly [Macaulay 1963; Haley 1997]. Where laws of contract are inadequate, in many developing and transition countries, informal relationships can substitute for the courts in allowing deals to be made [Greif 1997; McMillan 1997]. Ongoing or clientelistic relationships have long been studied by sociologists, anthropologists, and economic historians.1 They have been little studied econometricaly, however, because data are hard to come by and because the dependent variable, the success of the relationship, can be hard to measure.