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What Determines Firms' Decisions to Formalize? Empirical Evidence from Rural Indonesia

Author

Listed:
  • McCulloch, Neil
  • Schulze, Günther G.
  • Voss, Janina

Abstract

In this paper we analyze the decision of small and micro firms to formalize, i.e. to obtain business and other licenses in rural Indonesia. We use the rural investment climate survey (RICS) that comprises around 2500 non-farm rural enterprises in six Indonesian districts and analyze in an IV approach the effect of formalization on tax payments, corruption, access to credit and revenue. We take firm heterogeneity into account and show how the effect of formalization depends on firm characteristics such as firm size, education and ethnicity of the owner. We identify firm and owner characteristics that make formalization more likely.

Suggested Citation

  • McCulloch, Neil & Schulze, Günther G. & Voss, Janina, 2009. "What Determines Firms' Decisions to Formalize? Empirical Evidence from Rural Indonesia," Proceedings of the German Development Economics Conference, Frankfurt a.M. 2009 32, Verein für Socialpolitik, Research Committee Development Economics.
    • Handle: RePEc:zbw:gdec09:32
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    Citations

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    Cited by:

    1. Bruhn, Miriam, 2013. "A tale of two species: Revisiting the effect of registration reform on informal business owners in Mexico," Journal of Development Economics, Elsevier, vol. 103(C), pages 275-283.
    2. Nam Pham Xuan & Thanh Ha Le, 2023. "Bribery and firm survival in Vietnam: Moderating effects of market competition, credit, and institutional constraints," Review of Development Economics, Wiley Blackwell, vol. 27(2), pages 1242-1269, May.

    More about this item

    Keywords

    Formalization; rural development; rural investment climate;
    All these keywords.

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure

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