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Drivers of firm formalization in Vietnam: an attention theory explanation

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  • Tam Nguyen
  • Martie-Louise Verreynne
  • John Steen

Abstract

Informal enterprises are widely viewed as a mechanism to engage unemployed people in the economy and thereby alleviate poverty in developing economies. However, over-representation in an economy may lead to both economic growth and broader employment opportunities being sacrificed. This paper presents a process model to investigate three potential drivers for firms to formalize: the first from a desire to grow and develop the firm through innovation, the second from the wish to access government financial support and the third stimulated by the payment of unofficial payments or bribes. We use data from surveys of Vietnamese firms in 2005, 2007, 2009 and 2011 to investigate these drivers of formalization. Although we find support for all three of these drivers, the results differ in significance across years and firm types. We explain these differences using attention theory to show how different situations and events can make the formalization decision more likely over time.

Suggested Citation

  • Tam Nguyen & Martie-Louise Verreynne & John Steen, 2014. "Drivers of firm formalization in Vietnam: an attention theory explanation," Entrepreneurship & Regional Development, Taylor & Francis Journals, vol. 26(7-8), pages 574-593, October.
    • Handle: RePEc:taf:entreg:v:26:y:2014:i:7-8:p:574-593
    DOI: 10.1080/08985626.2014.959069
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    References listed on IDEAS

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    1. Hakkala, Katariina & Kokko , Ari, 2007. "The State And The Private Sector In Vietnam," EIJS Working Paper Series 236, Stockholm School of Economics, The European Institute of Japanese Studies.
    2. Loayza, Norman V., 1996. "The economics of the informal sector: a simple model and some empirical evidence from Latin America," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 45(1), pages 129-162, December.
    3. Ceyhun Elgin, 2010. "Political Turnover, Taxes and the Shadow Economy," Working Papers 2010/08, Bogazici University, Department of Economics.
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    Citations

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    Cited by:

    1. Thi Tran & Hai La, 2018. "Why do household businesses in Vietnam stay informal?," WIDER Working Paper Series 64, World Institute for Development Economic Research (UNU-WIDER).
    2. Christopher Pryor & Shaker A. Zahra & Garry D. Bruton, 2023. "Trusting without a Safety Net: The Peril of Trust in Base of the Pyramid Economies," Journal of Management Studies, Wiley Blackwell, vol. 60(4), pages 767-799, June.
    3. Nguyen, Tam & Verreynne, Martie-Louise & Steen, John & Torres de Oliveira, Rui, 2023. "Government support versus international knowledge: Investigating innovations from emerging-market small and medium enterprises," Journal of Business Research, Elsevier, vol. 154(C).
    4. Vuong Quan Hoang & La Viet Phuong & Vuong Thu Trang & Hoang Phuong Hanh & Ho Manh Toan & Ho Manh Tung & Nguyen Hong Kong To, 2020. "Multi-faceted insights of entrepreneurship facing a fast-growing economy: A literature review," Open Economics, De Gruyter, vol. 3(1), pages 25-41, January.
    5. Vuong, Quan-Hoang & La, Viet-Phuong & Ho, Manh-Toan & Vuong, Thu-Trang & Hoang, Hanh Phuong, 2019. "What have Vietnamese scholars learned from researching entrepreneurship?: A systematic review," OSF Preprints uhwmn, Center for Open Science.
    6. Thi Bich Tran & Hai Anh La, 2018. "Why do household businesses in Vietnam stay informal?," WIDER Working Paper Series wp-2018-64, World Institute for Development Economic Research (UNU-WIDER).
    7. Torres de Oliveira, Rui & Nguyen, Tam & Liesch, Peter & Verreynne, Martie-Louise & Indulska, Marta, 2021. "Exporting to escape and learn: Vietnamese manufacturers in global value chains," Journal of World Business, Elsevier, vol. 56(4).
    8. Pallavi Roy & Mushtaq H. Khan, 2021. "Digitizing Taxation and Premature Formalization in Developing Countries," Development and Change, International Institute of Social Studies, vol. 52(4), pages 855-877, July.
    9. Mai Chi Vu, 2021. "Tensions and Struggles in Tackling Bribery at the Firm Level: Perspectives from Buddhist-Enacted Organizational Leaders," Journal of Business Ethics, Springer, vol. 168(3), pages 517-537, January.
    10. Ha, Le Thanh & Thanh, To Trung & Thang, Doan Ngoc & Anh, Pham Thi Hoang, 2021. "Bribery, export decisions, and institutional constraints: Evidence from cross-country firm-level data," Economic Analysis and Policy, Elsevier, vol. 69(C), pages 585-612.
    11. Jugend, Daniel & Fiorini, Paula De Camargo & Armellini, Fabiano & Ferrari, Aline Gabriela, 2020. "Public support for innovation: A systematic review of the literature and implications for open innovation," Technological Forecasting and Social Change, Elsevier, vol. 156(C).
    12. Nhan Buu Phany & Shino Takayamaz, 2020. "Analyses of Corruption and Productivity with Empirical Study in Vietnam," Discussion Papers Series 628, School of Economics, University of Queensland, Australia.
    13. Julien Hanoteau & Virginie Vial, 2020. "Institutional quality, conforming and evasive entrepreneurship," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 10(1), pages 97-121, March.
    14. Ha, Le Thanh & Nam, Pham Xuan & Thanh, To Trung, 2021. "Effects of Bribery on Firms' Environmental Innovation Adoption in Vietnam: Mediating Roles of Firms' Bargaining Power and Credit and Institutional Constraints," Ecological Economics, Elsevier, vol. 185(C).
    15. Do, Tien Kim Thi & Van Vu, Huong, 2021. "Does formalization increase firm investment in human capital? New evidence from Vietnam," Finance Research Letters, Elsevier, vol. 42(C).

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