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Entry regulation and formalization of microenterprises in developing countries

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  • Bruhn, Miriam
  • McKenzie, David

Abstract

The majority of microenterprises in most developing countries remain informal despite more than a decade of reforms aimed at making it easier and cheaper for them to formalize. This paper summarizes the evidence on the effects of entry reforms and related policy actions to promote firm formalization. Most of these policies result only in a modest increase in the number of formal firms, if at all. Less is known about the impact of other forms of business regulations on the performance of low-scale enterprises. Most informal firms appear not to benefit on net from formalizing, so ease of formalization alone will not lead to most of them formalizing. Increased enforcement of rules can increase formality. Although there is a fiscal benefit of doing this with larger informal firms, it is unclear whether there is a public rationale for trying to formalize subsistence enterprises.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6507.

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Date of creation: 01 Jun 2013
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Handle: RePEc:wbk:wbrwps:6507

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Related research

Keywords: Microfinance; Small Scale Enterprise; E-Business; Business in Development; Competitiveness and Competition Policy;

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  1. Kaplan, David S. & Piedra, Eduardo & Seira, Enrique, 2011. "Entry regulation and business start-ups: Evidence from Mexico," Journal of Public Economics, Elsevier, vol. 95(11), pages 1501-1515.
  2. McKenzie, David & Sakho, Yaye Seynabou, 2007. "Does it pay firms to register for taxes ? the impact of formality on firm profitability," Policy Research Working Paper Series 4449, The World Bank.
  3. Sendhil Mullainathan & Philipp Schnabl, 2010. "Does Less Market Entry Regulation Generate More Entrepreneurs? Evidence from a Regulatory Reform in Peru," NBER Chapters, in: International Differences in Entrepreneurship, pages 159-177 National Bureau of Economic Research, Inc.
  4. Fajnzylber, Pablo & Maloney, William F. & Montes-Rojas, Gabriel V., 2011. "Does formality improve micro-firm performance? Evidence from the Brazilian SIMPLES program," Journal of Development Economics, Elsevier, vol. 94(2), pages 262-276, March.
  5. David Kaplan & Eduardo Piedra & Enrique Seira, 2006. "Are Burdensome Registration Procedures an Important Barrier on Firm Creation? Evidence from Mexico," Discussion Papers 06-013, Stanford Institute for Economic Policy Research.
  6. Maloney, William, 2003. "Informality revisited," Policy Research Working Paper Series 2965, The World Bank.
  7. Junmin Wan, 2010. "The Incentive to Declare Taxes and Tax Revenue: The Lottery Receipt Experiment in China," Review of Development Economics, Wiley Blackwell, vol. 14(s1), pages 611-624, 08.
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