Who fears competition from informal firms ? evidence from Latin America
AbstractThis paper investigates who is most affected by informal competition and how regulation and enforcement affect the extent and nature of this competition. Using newly-collected enterprise data for 6,466 manufacturing formal firms across 14 countries in Latin America, the authors show that formal firms affected by head-to-head competition with informal firms largely resemble them. They are small credit constrained, underutilize their productive capacity, serve smaller customers, and are in markets with low entry costs. In countries where the government is effective and business regulations onerous, formal firms in industries characterized by low costs to entry feel the sting of informal competition more than in other business environments. Finally, the analysis finds that in an economy with relatively onerous tax regulations and a government that poorly enforces its tax code, the percentage of firms adversely affected by informal competition will be reduced from 38.8 to 37.7 percent when the government increases enforcement to cover all firms.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 4316.
Date of creation: 01 Aug 2007
Date of revision:
Microfinance; Economic Theory&Research; Emerging Markets; E-Business; Banks&Banking Reform;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-08-27 (All new papers)
- NEP-COM-2007-08-27 (Industrial Competition)
- NEP-DEV-2007-08-27 (Development)
- NEP-REG-2007-08-27 (Regulation)
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- World Bank, 2009. "Mozambique - Investment Climate Assessment - 2009 : Sustaining and Broadening Growth," World Bank Other Operational Studies 3158, The World Bank.
- Justo de Jorge Moreno & Leopoldo Laborda Castillo & Fernando Merino de Lucas, 2011. "La empresa industrial de América Latina: Análisis de la eficiencia mediante grupos estratégicos," Económica, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata, vol. 0, pages 165-192, January-D.
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