Abstract:

How to integrate the domestic market in order to better utilize the advantages of mega–market scale is crucial to building a new development pattern of double-cycle. This paper systematically examines the impact of bilateral trust on the cross-regional distribution of suppliers using inter–regional bilateral trust data from the China Entrepreneurship Survey System and data on listed companies' off-site suppliers. It is found that both the degree of trust between the location of enterprises to the location of suppliers and the degree of trust between the location of suppliers to the location of enterprises can promote the cooperation between enterprises and off-site suppliers. Mechanistic analyses show that bilateral trust facilitates cooperation between firms and off-site suppliers by reducing search costs, contract costs, and management and monitoring costs. Heterogeneity analyses indicate that bilateral trust facilitates cooperation between firms and off-site suppliers more significantly in the context of high opportunistic risk and economic policy uncertainty. We further find that there is a substitution effect between the impact of bilateral trust and formal institutions on off-site supplier cooperation, and that bi- lateral trust also extends the duration of firms' cooperation with off-site suppliers. Finally, bilateral trust contributes to the realization of inter–regional production division of labor by facilitating suppliers' cross–regional distribution. From the perspective of bilateral trust as an informal institutional arrangement, this paper provides new ideas for China to better promote the construction of a unified domestic market.

Key words:

bilateral trust, distribution of suppliers, transaction costs, harmonization of large markets