Informality and Firm Performance in Myanmar

Formalization and its Discontents: Conceptual Fallacies and Ways Forward

“…Accordingly, firms and individuals in the informal economy may have a ‘formal’ relationship with one state actor (for example, a public service provider) but not with another (for example, the business‐licensing department of a municipal government). A dichotomous view of formalization obscures the myriad ways in which firms may straddle the formal–informal binary, operating on a continuum or spectrum between formality and informality, including by having more formal relationships with some elements of the state and less formal ones with others (Baker and Ximena Velasco Giachalla, 2018; Berkel and Tarp, 2022; Guha‐Khasnobis et al., 2006; Holland and Hummel, 2022; Maloney, 1999; Meagher, 2007, 2013; Meth, 2020; Ulyssea, 2018). Even when acknowledging the diversity of informality in their framing, it is still common for studies to operationalize informality as an ‘all or nothing’ category or to treat the relationship with one element of the state as being representative of constitutive features of the firm or individual.…”

“…This is reflected in empirical outcomes, with evidence indicating that the benefits of tax registration for firms are generally limited at best and non‐existent at worst (Benhassine et al., 2018; Bruhn and McKenzie, 2014; De Mel et al., 2013; McCaig and Nanowski, 2019; Rocha et al., 2018; Ulyssea, 2020). Where benefits do exist, evidence suggests that they may be limited to firms that were already more productive, bigger, or otherwise resembled formal firms before formalizing (Benhassine et al., 2018; Campos et al., 2015; see also, for example, Berkel and Tarp, 2022). Regardless of the causal chains that are commonly assumed to follow from tax registration, tax registration often achieves only one outcome: a larger, though not necessarily more accurate, list of prospective taxpayers.…”

The Impact of Formalization Program on Informal Household Enterprises Performance: Evidence From a Quasi-experiment in Nigeria

“…Among the many goals of formalization programs is the facilitation of informal businesses' access to credit and the provision of business training and other services geared toward their growth and expansion (Floridi et al, 2020). Economic growth, job creation, production efficiency, working conditions, and social protection were all seen as positive consequences in the formalization literature (ILO, 2015;Tijdens et al, 2015;Gatti et al, 2014;Fajnzylber et al, 2011;Berkel & Tarp, 2022). Contrary to these findings, a number of studies have documented negative association between formalization and firm performance (Rand & Torm, 2012;De Mel et al, 2013;Boly, 2018;Rocha et al, 2018;Campos et al, 2018;Benhassine et al, 2018;McCaig & Nanowski, 2019).The decision of an informal business to register is influenced by factors such as the quality of the institutions they deal with (Loayza et al, 2005;Williams & Kosta, 2020), the costs and benefits of registering (Diaz et al, 2018;De Mel et al, 2013), a lack of managerial skills (Mukorera, 2019), patriarchal norms (Thapa Karki et al, 2021), and human capital (Do and Vu, 2021).…”

“…This study primarily contributes to the extant literature on the micro-level effects of formalization on firms and its associated benefits. A few scholars study whether and how formalization have contributed to firm performance in Asia (Fajnzylber et al, 2011;Rand & Torm, 2012;Boly, 2018;Berkel & Tarp, 2022) and Latin America (Monteiro & Assuncao, 2012;Piza, 2018;McKenzie & Sakho, 2010), all with conflicting findings and unclear how household enterprises could benefits from formalization. Moreover, Africa is generally understudied in the existing literature, and we find no micro-level studies in Nigeria yet.…”

“…This study extends this literature by studying how household enterprises respond to formalization reforms by employing quasi-experimental approaches (difference-in-difference and propensity score matching). Recent articles by Boly (2018), Moyo (2022), Berkel and Tarp (2022), and Cavotta and Dalpiaz (2022) solemnly focus on firm-level formalization and applied conventional estimation strategies that mostly do not addressed causality. While these studies share an emphasis on formalization and its benefits, the analysis in this study focus on household-level enterprises which is mostly contributes to informality in Nigeria (NBS, 2018) by employing DID for estimating causal effects, rather than firm-level.…”