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Who fears competition from informal firms ? evidence from Latin America

Author

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  • Gonzalez, Alvaro S.
  • Lamanna, Francesca

Abstract

This paper investigates who is most affected by informal competition and how regulation and enforcement affect the extent and nature of this competition. Using newly-collected enterprise data for 6,466 manufacturing formal firms across 14 countries in Latin America, the authors show that formal firms affected by head-to-head competition with informal firms largely resemble them. They are small credit constrained, underutilize their productive capacity, serve smaller customers, and are in markets with low entry costs. In countries where the government is effective and business regulations onerous, formal firms in industries characterized by low costs to entry feel the sting of informal competition more than in other business environments. Finally, the analysis finds that in an economy with relatively onerous tax regulations and a government that poorly enforces its tax code, the percentage of firms adversely affected by informal competition will be reduced from 38.8 to 37.7 percent when the government increases enforcement to cover all firms.

Suggested Citation

  • Gonzalez, Alvaro S. & Lamanna, Francesca, 2007. "Who fears competition from informal firms ? evidence from Latin America," Policy Research Working Paper Series 4316, The World Bank.
  • Handle: RePEc:wbk:wbrwps:4316
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Justo de Jorge Moreno & Leopoldo Laborda Castillo & Fernando Merino de Lucas, 2011. "La empresa industrial de América Latina: Análisis de la eficiencia mediante grupos estratégicos," Económica, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata, vol. 0, pages 165-192, January-D.
    2. World Bank, 2009. "Mozambique - Investment Climate Assessment - 2009 : Sustaining and Broadening Growth," World Bank Other Operational Studies 3158, The World Bank.
    3. Gokalp, Omer N. & Lee, Seung-Hyun & Peng, Mike W., 2017. "Competition and corporate tax evasion: An institution-based view," Journal of World Business, Elsevier, vol. 52(2), pages 258-269.
    4. Karlinger, Liliane, 2009. "The Underground Economy in the Late 1990s: Evading Taxes, or Evading Competition?," World Development, Elsevier, pages 1600-1611.
    5. Sean M. Dougherty & Octavio R. Escobar, 2016. "Could Mexico become the new ‘China’? Policy drivers of competitiveness and productivity," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 13(2), pages 169-198, December.
    6. repec:eee:iburev:v:27:y:2018:i:1:p:218-230 is not listed on IDEAS
    7. World Bank Group, 2014. "Kenya Economic Update, December 2014, No. 11," World Bank Other Operational Studies 21803, The World Bank.

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    Keywords

    Microfinance; Economic Theory&Research; Emerging Markets; E-Business; Banks&Banking Reform;

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