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The Benefits of Formalization: Evidence from Vietnamese Manufacturing SMEs

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  • Rand, John
  • Torm, Nina

Abstract

Based on unique panel data consisting of both formal and informal firms, this paper uses a matched double difference approach to examine the relationship between legal status and firm level outcomes in micro, small and medium manufacturing enterprises (SMEs) in Vietnam. Controlling for determining factors and observable time-variant factors that may simultaneously influence the decision to formalize and subsequent firm performance, we find evidence that becoming officially registered leads to an increase in profits and investments, and a decrease in the use of casual labor (improved contract conditions for workers). Thus, we conclude that formalizing is beneficial both to firms and the workers in these firms.

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Bibliographic Info

Article provided by Elsevier in its journal World Development.

Volume (Year): 40 (2012)
Issue (Month): 5 ()
Pages: 983-998

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Handle: RePEc:eee:wdevel:v:40:y:2012:i:5:p:983-998

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Web page: http://www.elsevier.com/locate/worlddev

Related research

Keywords: formality; employment; Vietnam;

References

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Citations

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Cited by:
  1. Nguyen Thi Lan Huong & Luu Quan Tuan & Meissner, Matthias & Bui Sy Tuan & Dang Do Quyen & Nguyen Hai Yen, 2013. "Social Protection for the Informal Sector and the Informally Employed in Vietnam: Literature and data review," IEE Working Papers 199, Institut fuer Entwicklungsforschung und Entwicklungspolitik, Ruhr-Universitaet Bochum.
  2. Vu, Van Huong, 2012. "Does export participation affect wages and employment quality? the case of Vietnamese SMEs," MPRA Paper 38696, University Library of Munich, Germany.
  3. Nordman, Christophe J. & Nguyen, Huu Chi & Roubaud, François, 2011. "Who Suffers the Penalty? A Panel Data Analysis of Earnings Gaps in Vietnam," Proceedings of the German Development Economics Conference, Berlin 2011 60, Verein für Socialpolitik, Research Committee Development Economics.
  4. Smriti Sharma, 2014. "Benefits of a registration policy for microenterprise performance in India," Small Business Economics, Springer, vol. 42(1), pages 153-164, January.
  5. Roubaud, François & Razafindrakoto, Mireille & Cling, Jean-Pierre, 2012. "Explanatory factors behind formalizing non-farm household businesses in Vietnam," Economics Papers from University Paris Dauphine 123456789/11191, Paris Dauphine University.
  6. Benedikter, Simon & Waibel, Gabi & Birtel, Serge & Bui, Cuong The & Tran, Be Thanh, 2013. "Local Entrepreneurship in Vietnam’s Rural Transformation. A Case Study from the Mekong Delta," MPRA Paper 49866, University Library of Munich, Germany.
  7. Huong Vu & Steven Lim & Mark Holmes & Tinh Doan, 2013. "Firm Exporting and Employee Benefits: First Evidence from Vietnam Manufacturing SMEs," Economics Bulletin, AccessEcon, vol. 33(1), pages 519-535.

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