Informal Institutions in Transition: How Vietnam's Private Sector Boomed without Legal Protection
We examine the role of informal and formal institutions behind the remarkable growth in the private sector in the Vietnamese economy since the start of the economic transition in the late 1980s. We show that firms in Vietnam have increasingly taken on risks in their transactions, in spite of weak or non-existent formal institutions. We find that risk taking by firms can be explained by the use of informal institutions such as relational contracts and networks along with the recourse to emerging formal institutions such as written contracts. Our results suggest that formal and informal institutions can act as complements during the process of transition, and that informal institutions may remain important as mechanisms of risk management even as the economy matures and new formal institutions gradually developed.
Kunal Sen (Manchester) and Liesbet Steer (ODI), 2008
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Last modified: 31 March 2009