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Shedding light on the shadows of informality: A meta-analysis of formalization interventions targeted at informal firms

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  • Floridi, Andrea
  • Demena, Binyam Afewerk
  • Wagner, Natascha

Abstract

Governments and policymakers promote formalization through various interventions ranging from simplifying registration procedures to increasing law enforcement. Despite these efforts, not much is known about the effects of interventions aiming at formalizing informal firms. This meta-analysis examines the empirical literature on the impact of such formalization interventions. We systematically assessed the literature on the impact of formalization policies resulting in 842 estimates from 27 studies conducted by 49 researchers and published until June 2019. We analysed the meta-impact of (i) cost, (ii) benefit and (iii) enforcement policy interventions and verified whether the resulting outcomes are influenced by the type of data, econometric approach and specification, country characteristics, as well as publication bias. Overall, we find no evidence for increased formalization associated with the so far implemented interventions. There is some indication that policies increasing the benefits after formalization are associated with increased formalization rates but the evidence base is thin suggesting that further piloting and experimenting is needed to achieve large-scale formalization of the informal economy.

Suggested Citation

  • Floridi, Andrea & Demena, Binyam Afewerk & Wagner, Natascha, 2020. "Shedding light on the shadows of informality: A meta-analysis of formalization interventions targeted at informal firms," Labour Economics, Elsevier, vol. 67(C).
  • Handle: RePEc:eee:labeco:v:67:y:2020:i:c:s0927537120301299
    DOI: 10.1016/j.labeco.2020.101925
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    8. Demena, B.A., 2021. "Effectiveness of export promotion programmes," ISS Working Papers - General Series 688, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    9. Demena, B.A. & Benalcazar Jativa, G. & Reta, A.S. & Kimararungu, P.B. & van Bergeijk, P.A.G., 2021. "Does research on economic sanctions suffer from publication bias?," ISS Working Papers - General Series 674, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    10. Andrea Floridi & Binyam Afewerk Demena & Natascha Wagner, 2022. "A Game Worth The Candle? Meta-Analysis Of The Effects Of Formalization On Firm Performance," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 27(04), pages 1-27, December.
    11. Aga,Gemechu A. & Francis,David C. & Jolevski,Filip & Rodriguez Meza,Jorge Luis & Wimpey,Joshua Seth, 2022. "Surveying Informal Businesses : Methodology and Applications," Policy Research Working Paper Series 9905, The World Bank.
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