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Working Paper 159 - Why do some Firms abandon Formality for Informality? Evidence from African Countries?

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This paper analyzes the determinants of firms exiting the formal sector after registering at start-up. Using a unique and new dataset from four African countries (Cote d’Ivoire, Kenya, Nigeria and Senegal) with detailed information on firms that have transitioned between formal and informal status, we shed further light on the determinants of formality. We found that productivity and corruption (in terms of informal payments to public officials made by firms) significantly lead to firms going back into the informal sector even after initially registering at start-up. In the other direction, we found that higher productivity, better access to bank finance at start-up and education increase the likelihood of switching to formal status after initially being unregistered or informal at start-up. The results are robust to controlling for many relevant variables and controlling for selection.

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  • Ousman Gajigo & Mary Hallward-Driemeier, 2012. "Working Paper 159 - Why do some Firms abandon Formality for Informality? Evidence from African Countries?," Working Paper Series 437, African Development Bank.
    • Handle: RePEc:adb:adbwps:437
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Determinants of Business Formality in Some African Countries
      by UDADISI in UDADISI on 2012-12-15 05:40:00

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    Cited by:

    1. Becker, Dennis, 2014. "Heterogeneous Firms and Informality: The Effects of Trade Liberalization on Labor Markets," Working Papers 180124, Cornell University, Department of Applied Economics and Management.
    2. Cantens, Thomas & Kaminski, Jonathan & Kaminski, Jonathan & Raballand, Gael & Tchapa, Tchouawou, 2014. "Customs, brokers, and informal sectors : a Cameroon case study," Policy Research Working Paper Series 6788, The World Bank.
    3. Favourate Y Sebele-Mpofu & Nomazulu Moyo, 2021. "An Evil to be Extinguished or a Resource to be harnessed-Informal Sector in Developing Countries: A Case of Zimbabwe," Journal of Economics and Behavioral Studies, AMH International, vol. 13(3), pages 53-72.

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