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Household Enterprises: The Impact of Formality on Productivity and Profits

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  • Nesma Ali

    (Heinrich-Heine University Düsseldorf)

  • Mohamed Ali Marouani

    (IRD and Paris 1 Pantheon-Sorbonne University)

Abstract

In this paper, we assess the impact of commercial registration of household enterprises on their labor productivity and profits. Based on the 2012 and 2018 rounds of the Egyptian Labor Market Panel Surveys, we employ an instrumental variable strategy and find a positive effect of formal registration on profit and a much higher positive effect on labor productivity. The main channels are higher capital intensity and assets. In addition to the owner’s gender and education level, labor productivity varies mainly with firms’ assets and shared ownership, while profits are mostly determined by the age of the firm and that of its owner. We also find that the positive effect of formality on performance holds for a select category of owners and firms. Finally, our analysis allows us to identify different policy intervention tools for household firms according to their productivity levels and their distance to a threshold of formality fixed costs.

Suggested Citation

  • Nesma Ali & Mohamed Ali Marouani, 2020. "Household Enterprises: The Impact of Formality on Productivity and Profits," Working Papers 1452, Economic Research Forum, revised 20 Dec 2020.
    • Handle: RePEc:erg:wpaper:1452
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