Liability of informality and firm participation in global value chains

Building on imprinting theory, we formalize the construct ‘liability of informality’, arguing that firms that start operating in the informal sector but later move to the formal sector are less likely to participate directly, and more likely to participate indirectly, in global value chains (GVCs) than those that start out as registered businesses. We further argue that the amount of time spent in the informal sector emphasizes these effects. Using World Bank Enterprise Survey data from 112 developing and emerging economies, we show that informality leaves a strong blueprint on firms, which tends to persist over time.