IDEAS home Printed from https://ideas.repec.org/a/eee/deveco/v179y2026ics0304387825002354.html

A structural analysis of firms’ transition from informality to formality in Nigeria

Author

Listed:
  • Adom, Idossou Marius

Abstract

This paper argues that firms’ transition from informality to formality is important in Sub-Saharan Africa but was overlooked in the literature. It develops a structural dynamic model of heterogeneous firms, rationalizing the empirical relationship between transition from informality to formality and taxes, financial constraints, regulations and enforcement. When calibrated to Nigeria’s data, the results of the model show that different policies can significantly reduce informality through both the extensive margin (i.e the creation of new formal firms) and the intensive margin (i.e the formalization of incumbent informal firms) with a positive effect on aggregate production, TFP, and government revenue. In absence of financial constraints, the intensive margin becomes quantitatively insignificant, demonstrating the importance of financial constraints in firms’ decision to delay formalization and underscoring the relevance of transition in modeling informality.

Suggested Citation

  • Adom, Idossou Marius, 2026. "A structural analysis of firms’ transition from informality to formality in Nigeria," Journal of Development Economics, Elsevier, vol. 179(C).
    • Handle: RePEc:eee:deveco:v:179:y:2026:i:c:s0304387825002354
    DOI: 10.1016/j.jdeveco.2025.103684
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304387825002354
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jdeveco.2025.103684?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:deveco:v:179:y:2026:i:c:s0304387825002354. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/devec .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.