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On the benefits of formalization: Panel evidence from Vietnam

Listed author(s):
  • Amadou Boly

This paper examines the relationship between formalization and firm-level outcomes in Vietnam using a unique panel dataset. Results show that switching firms differ from informal nonswitching firms, confirming heterogeneity. We also find that becoming formal leads to increased profits, value added, and revenue. The performance of switching firms is higher than that of informal ones, but remains lower compared to non-switching formal firms. Our results suggest that the benefits of formalization materialize in the short term and persist over time. These benefits run through access to improved equipment, larger customer base, advertising, and business association membership, but not access to credit.

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File URL: https://www.wider.unu.edu/sites/default/files/wp2015-038.pdf
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Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series WIDER Working Paper Series with number 038.

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Length: 28 pages
Date of creation: 2015
Handle: RePEc:unu:wpaper:wp2015-038
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  4. Miguel Jaramillo, 2013. "Is there demand for formality among informal firms? Evidence from microfirms in downtown Lima," Avances de Investigación 0013, Grupo de Análisis para el Desarrollo (GRADE).
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  7. Suresh de Mel & David McKenzie & Christopher Woodruff, 2013. "The Demand for, and Consequences of, Formalization among Informal Firms in Sri Lanka," American Economic Journal: Applied Economics, American Economic Association, vol. 5(2), pages 122-150, April.
  8. Joshi, Anuradha & Prichard, Wilson & Heady, Christopher, 2013. "Taxing the Informal Economy: Challenges, Possibilities and Remaining Questions," Working Papers 11257, Institute of Development Studies, International Centre for Tax and Development.
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  11. Gustavo Henrique de Andrade & Miriam Bruhn & David McKenzie, 2016. "A Helping Hand or the Long Arm of the Law? Experimental Evidence on What Governments Can Do to Formalize Firms," World Bank Economic Review, World Bank Group, vol. 30(1), pages 24-54.
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  16. Rand, John & Torm, Nina, 2012. "The Benefits of Formalization: Evidence from Vietnamese Manufacturing SMEs," World Development, Elsevier, vol. 40(5), pages 983-998.
  17. Pablo Fajnzylber & William F. Maloney & Gabriel V. Montes-Rojas, 2009. "Releasing Constraints to Growth or Pushing on a String? Policies and Performance of Mexican Micro-Firms," Journal of Development Studies, Taylor & Francis Journals, vol. 45(7), pages 1027-1047, August.
  18. Guillermo E. Perry & William F. Maloney & Omar S. Arias & Pablo Fajnzylber & Andrew D. Mason & Jaime Saavedra-Chanduvi, 2007. "Informality : Exit and Exclusion," World Bank Publications, The World Bank, number 6730, September.
  19. Halvorsen, Robert & Palmquist, Raymond, 1980. "The Interpretation of Dummy Variables in Semilogarithmic Equations," American Economic Review, American Economic Association, vol. 70(3), pages 474-475, June.
  20. John Rand & Finn Tarp, 2011. "Does Gender Influence the Provision of Fringe Benefits? Evidence From Vietnamese SMEs," Feminist Economics, Taylor & Francis Journals, vol. 17(1), pages 59-87, January.
  21. Gaaitzen De Vries, 2010. "Small Retailers in Brazil: Are Formal Firms Really More Productive?," Journal of Development Studies, Taylor & Francis Journals, vol. 46(8), pages 1345-1366.
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