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A tale of two species: Revisiting the effect of registration reform on informal business owners in Mexico

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  • Bruhn, Miriam

Abstract

Some argue that informal business owners are viable entrepreneurs who do not register due to complex regulation. Others claim that they are making a living while searching for a job. This paper suggests that a mix of both views is correct. I separate informal business owners into those who have characteristics similar to wage workers and to formal business owners and study the impact of a business registration reform in Mexico on these two species. Informal business owners from the wage worker species are less likely to register due to the reform, but more likely to become wage workers since the reform created jobs. Informal business owners from the formal business owner species are more likely to register, but only in municipalities with high pre-reform constraints to formal entrepreneurship. These results explain why Bruhn (2008, 2011) finds no effect of the reform for all informal business owners taken together.

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  • Bruhn, Miriam, 2013. "A tale of two species: Revisiting the effect of registration reform on informal business owners in Mexico," Journal of Development Economics, Elsevier, vol. 103(C), pages 275-283.
  • Handle: RePEc:eee:deveco:v:103:y:2013:i:c:p:275-283
    DOI: 10.1016/j.jdeveco.2013.03.013
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    Cited by:

    1. Skott, Peter & Gómez-Ramírez, Leopoldo, 2018. "Credit constraints and economic growth in a dual economy," Structural Change and Economic Dynamics, Elsevier, vol. 45(C), pages 64-76.
    2. Francesco Bripi, 2016. "The Role of Regulation on Entry: Evidence from the Italian Provinces," World Bank Economic Review, World Bank Group, vol. 30(2), pages 383-411.
    3. Benhassine,Najy & Mckenzie,David J. & Pouliquen,Victor Maurice Joseph & Santini,Massimiliano, 2015. "Finding a path to formalization in Benin : early results after the introduction of the entreprenant legal status," Policy Research Working Paper Series 7510, The World Bank.
    4. repec:eee:ecolec:v:149:y:2018:i:c:p:202-211 is not listed on IDEAS
    5. Melanie Khamis, 2014. "Formalization of jobs and firms in emerging market economies through registration reform," IZA World of Labor, Institute for the Study of Labor (IZA), pages 1-67, May.
    6. World Bank Group, 2015. "Poverty and Shared Prosperity in Brazil's Metropolitan Regions," World Bank Other Operational Studies 22316, The World Bank.
    7. Beck, Thorsten & Cull, Robert, 2014. "SME finance in Africa," Policy Research Working Paper Series 7018, The World Bank.
    8. Amadou Boly, 2015. "On the benefits of formalization: Panel evidence from Vietnam," WIDER Working Paper Series 038, World Institute for Development Economic Research (UNU-WIDER).
    9. Gabriela Calderon & Leonardo Iacovone & Laura Juarez, 2017. "Opportunity versus Necessity: Understanding the Heterogeneity of Female Micro-Entrepreneurs," World Bank Economic Review, World Bank Group, vol. 30(Supplemen), pages 86-96.
    10. De Giorgi,Giacomo & Ploenzke,Matthew & Rahman,Aminur, 2015. "Small firms? formalization : the stick treatment," Policy Research Working Paper Series 7318, The World Bank.
    11. Becker, Dennis, 2014. "Heterogeneous Firms and Informality: The Effects of Trade Liberalization on Labor Markets," Working Papers 180124, Cornell University, Department of Applied Economics and Management.
    12. Monica Amici & Silvia Giacomelli & Francesco Manaresi & Marco Tonello, 2015. "Red tape reduction and firm entry: evidence from an Italian reform," Questioni di Economia e Finanza (Occasional Papers) 285, Bank of Italy, Economic Research and International Relations Area.
    13. repec:eee:poleco:v:51:y:2018:i:c:p:121-140 is not listed on IDEAS
    14. Bruhn, Miriam & Loeprick, Jan, 2014. "Small business tax policy, informality, and tax evasion -- evidence from Georgia," Policy Research Working Paper Series 7010, The World Bank.
    15. repec:eee:tefoso:v:131:y:2018:i:c:p:326-335 is not listed on IDEAS
    16. Mariana A. Toran & F. Javier Morales & Sara G. Castellanos, 2012. "Analysis of the Use of Financial Services by Companies in Mexico: What does the 2009 Economic Census tell us?," Working Papers 1216, BBVA Bank, Economic Research Department.
    17. Amici, Monica & Giacomelli, Silvia & Manaresi, Francesco & Tonello, Marco, 2016. "Red tape reduction and firm entry: New evidence from an Italian reform," Economics Letters, Elsevier, vol. 146(C), pages 24-27.
    18. F. Javier Morales & Sara G. Castellanos & Mariana A. Toran, 2012. "Analisis del uso de servicios financieros por parte de las empresas en Mexico. Que nos dice el Censo Economico 2009," Working Papers 1215, BBVA Bank, Economic Research Department.
    19. Rahman, Aminur, 2014. "Investment climate reforms and job creation in developing countries : what do we know and what should we do ?," Policy Research Working Paper Series 7025, The World Bank.

    More about this item

    Keywords

    Informal sector; Business registration reform; Entrepreneurship;

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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