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The voluntary formalization of enterprises in a developing economy-the case of Tanzania

Author

Listed:
  • Edwin G. Nelson

    (Associate of Durham University Business School, Small Business Centre, Durham, UK, TSM Business School, Enschede, The Netherlands and University of Dar es Salaam Eprepreneurship Centre)

  • Erik J. De Bruijn

    (University of Twente, Enschede, The Netherlands)

Abstract

The informal sector of the Tanzanian economy is a changing, heterogeneous mixture of enterprises operating wholly or partially outside of the government system of regulation. It flourishes partly because informality offers opportunities of economic necessity to the poor, most of who will never be able to assimilate the costs of formalization, and partly because it offers others a low cost arena for experimentation that can lead to business growth. Some enterprises do formalise voluntarily, the stimulus for which can be represented as an economic function determined by the values that operators assign to institutional incentives, opportunity costs and formalization costs, and the process can be represented as an exchange transaction with government. Government tolerates the informal sector because it reduces unemployment and contributes to poverty alleviation, but it is not officially recognized and government is under some pressure to formalize it. A policy based on formalization seen as a voluntary transaction between operators and government could focus on mutual benefits and reduce the risk of damaging fragile enterprises and livelihoods for little benefit. Copyright © 2005 John Wiley & Sons, Ltd.

Suggested Citation

  • Edwin G. Nelson & Erik J. De Bruijn, 2005. "The voluntary formalization of enterprises in a developing economy-the case of Tanzania," Journal of International Development, John Wiley & Sons, Ltd., vol. 17(4), pages 575-593.
    • Handle: RePEc:wly:jintdv:v:17:y:2005:i:4:p:575-593
    DOI: 10.1002/jid.1176
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    Citations

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    Cited by:

    1. Hanna Berkel, 2018. "The costs and benefits of formalization for firms: A mixed-methods study on Mozambique," WIDER Working Paper Series wp-2018-159, World Institute for Development Economic Research (UNU-WIDER).
    2. Thi Tran & Hai La, 2018. "Why do household businesses in Vietnam stay informal?," WIDER Working Paper Series 64, World Institute for Development Economic Research (UNU-WIDER).
    3. repec:ilo:ilowps:425543 is not listed on IDEAS
    4. Gachet, Nicolas., 2008. "Formalisation through micro-finance : an empirical study in Egypt," ILO Working Papers 994255433402676, International Labour Organization.
    5. repec:ilo:ilowps:413142 is not listed on IDEAS
    6. Dominic, Theresia & Theuvsen, Ludwig, 2015. "The Impact of External and Internal Factors on Strategic Management Practices of Agribusiness Firms in Tanzania," GlobalFood Discussion Papers 197072, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    7. Thi Bich Tran & Hai Anh La, 2018. "Why do household businesses in Vietnam stay informal?," WIDER Working Paper Series wp-2018-64, World Institute for Development Economic Research (UNU-WIDER).
    8. Tendy Matenge & Vic Razis, 2012. "Sowing the Seeds," International Journal of Business Administration, International Journal of Business Administration, Sciedu Press, vol. 3(2), pages 38-46, March.
    9. Manomaivibool, Panate, 2009. "Extended producer responsibility in a non-OECD context: The management of waste electrical and electronic equipment in India," Resources, Conservation & Recycling, Elsevier, vol. 53(3), pages 136-144.
    10. World Bank, 2007. "Tanzania - Sustaining and Sharing Economic Growth : Country Economic Memorandum and Poverty Assessment, Volume 1. Main Report," World Bank Publications - Reports 7703, The World Bank Group.
    11. repec:kqi:journl:2017-1-1 is not listed on IDEAS
    12. Amin, Mohammad & Islam, Asif, 2015. "Are Large Informal Firms More Productive than the Small Informal Firms? Evidence from Firm-Level Surveys in Africa," World Development, Elsevier, vol. 74(C), pages 374-385.
    13. Robert J. Utz, 2007. "Sustaining and Sharing Economic Growth in Tanzania : Contents of CD Rom," World Bank Publications - Books, The World Bank Group, number 6894, December.
    14. Reeg, Caroline, 2015. "Micro and small enterprises as drivers for job creation and decent work," IDOS Discussion Papers 10/2015, German Institute of Development and Sustainability (IDOS).
    15. Ioana M. PETRESCU, 2016. "The Effects of Economic Sanctions on the Informal Economy," Management Dynamics in the Knowledge Economy, College of Management, National University of Political Studies and Public Administration, vol. 4(4), pages 623-648, December.
    16. Hanna Berkel, 2018. "The costs and benefits of formalization for firms: A mixed-methods study on Mozambique," WIDER Working Paper Series 159, World Institute for Development Economic Research (UNU-WIDER).

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