Bilateral Trust and Building a Unified National Market: From the Perspective of Cross-Regional Distribution of Suppliers

Abstract

Effectively integrating China’s domestic market to make use of a super-large market scale is essential for establishing a new development paradigm characterized by dual circulation. This paper utilizes regional bilateral trust data from the Chinese Entrepreneur Survey System (CESS) alongside non-local supplier data from listed companies to systematically investigate the influence of bilateral trust on the cross-regional distribution of suppliers. The findings indicate that the level of trust between enterprises and non local suppliers can promote cooperation between enterprises and suppliers from different regions. Moreover, bilateral trust and formal institutional frameworks exhibit a substitution effect in supporting cooperation with non-local suppliers. Mechanism analyses reveal that bilateral trust enhances cooperation with non-local suppliers by reducing search costs, contracting expenses, and managerial and supervisory fees. Heterogeneity analyses reveal that in the presence of opportunistic risks and increased economic policy uncertainty, bilateral trust significantly enhances the formation of partnerships with non local suppliers. Further analyses show that bilateral trust also prolongs the duration of such interregional cooperative relationships. Ultimately, bilateral trust promotes the interregional division of production by encouraging suppliers to expand their distribution across regions. Approaching from the perspective of bilateral trust as an informal institution, this paper aims to offer new insights to support China’s efforts in advancing a unified national market.

Keywords

bilateral trust / supplier distribution / transaction cost / unified national market

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Higher Education Press