Unpacking the relationship between digitalization and formalization among micro-entrepreneurs in an emerging market

This study examines the interplay between digitalization and formalization among microentrepreneurs. While digital tools have traditionally been viewed as enablers of formalization, their effects may also contribute to the opposite effect. For instance, digitalization can sometimes reduce the perceived need for formalization by lowering regulatory barriers, thus allowing informal entrepreneurs to access critical resources and services without the need for formal registration. Drawing on an empirical examination of 861 microentrepreneurs from Chile, we aim to uncover how digitalization shapes microentrepreneurial dynamics and how contextual and individual elements, such as age, economic sector, entrepreneurial motivation, and regional traits, influence the adoption of digital platforms and the overall decision to formalize. With this project, we aim to contribute to entrepreneurship scholarship by challenging some commonly held assumptions about formalization and instead proposing a more nuanced understanding of how digital tools influence business ventures and the decision among microentrepreneurs to register their ventures (or not). Based on our findings, we discuss theoretical and practical implications concerning the complementary and synergistic benefits of digitalization and formalization, while also addressing potential unintended consequences and negative outcomes from digital platforms, such as increased informality.