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Entry regulation and formalization of microenterprises in developing countries

Author

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  • Bruhn, Miriam
  • McKenzie, David

Abstract

The majority of microenterprises in most developing countries remain informal despite more than a decade of reforms aimed at making it easier and cheaper for them to formalize. This paper summarizes the evidence on the effects of entry reforms and related policy actions to promote firm formalization. Most of these policies result only in a modest increase in the number of formal firms, if at all. Less is known about the impact of other forms of business regulations on the performance of low-scale enterprises. Most informal firms appear not to benefit on net from formalizing, so ease of formalization alone will not lead to most of them formalizing. Increased enforcement of rules can increase formality. Although there is a fiscal benefit of doing this with larger informal firms, it is unclear whether there is a public rationale for trying to formalize subsistence enterprises.

Suggested Citation

  • Bruhn, Miriam & McKenzie, David, 2013. "Entry regulation and formalization of microenterprises in developing countries," Policy Research Working Paper Series 6507, The World Bank.
  • Handle: RePEc:wbk:wbrwps:6507
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    References listed on IDEAS

    as
    1. Fajnzylber, Pablo & Maloney, William F. & Montes-Rojas, Gabriel V., 2011. "Does formality improve micro-firm performance? Evidence from the Brazilian SIMPLES program," Journal of Development Economics, Elsevier, vol. 94(2), pages 262-276, March.
    2. McKenzie, David & Seynabou Sakho, Yaye, 2010. "Does it pay firms to register for taxes? The impact of formality on firm profitability," Journal of Development Economics, Elsevier, vol. 91(1), pages 15-24, January.
    3. Kaplan, David S. & Piedra, Eduardo & Seira, Enrique, 2011. "Entry regulation and business start-ups: Evidence from Mexico," Journal of Public Economics, Elsevier, vol. 95(11), pages 1501-1515.
    4. Junmin Wan, 2010. "The Incentive to Declare Taxes and Tax Revenue: The Lottery Receipt Experiment in China," Review of Development Economics, Wiley Blackwell, vol. 14(s1), pages 611-624, August.
    5. Maloney, William F., 2004. "Informality Revisited," World Development, Elsevier, vol. 32(7), pages 1159-1178, July.
    6. Sendhil Mullainathan & Philipp Schnabl, 2010. "Does Less Market Entry Regulation Generate More Entrepreneurs? Evidence from a Regulatory Reform in Peru," NBER Chapters,in: International Differences in Entrepreneurship, pages 159-177 National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Weekly links August 14: reducing the costs to formalize has no effect again, don’t trust the Mechanical Turk, and more…
      by David McKenzie in Development Impact on 2015-08-14 18:21:00

    Citations

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    Cited by:

    1. Martinez, Candace & Cummings, Michael E. & Vaaler, Paul M., 2015. "Economic informality and the venture funding impact of migrant remittances to developing countries11Please contact Paul M. Vaaler regarding this paper. This research benefitted from a presentation at ," Journal of Business Venturing, Elsevier, pages 526-545.
    2. López-Martín Bernabé, 2016. "Informal Sector Misallocation," Working Papers 2016-09, Banco de México.
    3. Grimm, Michael & Paffhausen, Anna Luisa, 2015. "Do interventions targeted at micro-entrepreneurs and small and medium-sized firms create jobs? A systematic review of the evidence for low and middle income countries," Labour Economics, Elsevier, vol. 32(C), pages 67-85.
    4. World Bank & Asian Development Bank, 2015. "The Investment Climate Assessment 2014 : Creating Opportunities for Firms in Cambodia," World Bank Other Operational Studies 21529, The World Bank.

    More about this item

    Keywords

    Microfinance; Small Scale Enterprise; E-Business; Business in Development; Competitiveness and Competition Policy;

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