Firm Entry, Exit and Suspension : Evidence from Household Businesses in Vietnam

Household businesses make up the majority of firms in developing economies. This paper uses anovel tax census database that covers the universe of tax-registered household businesses to analyze the entry andexit of owner-operated firms in Vietnam during January 2018 to August 2020. It documents new stylized facts about thesurvival dynamics of informal businesses. First, the entry and exit rates were about 5-6 percent a year fortax-registered household businesses during the pre-pandemic period. Second, an additional 25 percent of householdbusinesses suspended their activity in a year on average, with the annual suspension duration exceeding 2.5 months.The suspension rate spiked to 40 percent during the onset of the COVID-19 pandemic in 2020. Third, the findings show thatthe pandemic-related effects were more pronounced for businesses dependent on face-to-face interactions withcustomers and suppliers. However, these effects were short lived, and activity and earnings rebounded by August 2020.The findings may reflect the relatively short COVID-19 distress in Vietnam during the first phase of the pandemic,but they illuminate both the vulnerabilities and resilience of the household business sector.