Trust and economic development: comparison of subcontracting relations among Korea, Japan and Taiwan

Abstract

This study examines the link between trust and economic development by focusing on subcontracting relations and comparing institutional sources of trust among Korea, Japan and Taiwan. Korea and Japan show similarities that trust was based on institution, whereas trust may be a product of culture as well as that of institution in Taiwan. In contrast to Taiwan and Japan, the Korean subcontracting relations between the Les(Large Enterprises) and the SMEs(Sma1l And Medium Enterprises) have been exploitative and noncooperative ones without trust, and the Korean economy has the dual structure of strong LES and weak SMEs. The persistent weakness of the SMEs in Korea could be attributed to institutional defects, resulted from the political coalition between the governent and the LES, excluding the SMEs. To increase the level of trust in subcontracting relations, institutional setting such as monitoring and sanctioning system needs to be established. Building effective institutions requires genuine understanding of the importance of the SMEs in the economy.