Is Informality Good for Business? The Impacts of IDP Inflows on Formal Firms

Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

Casting a shadow: Productivity of formal firms and informality

“…However, they do not provide any empirical evidence to support this claim. Rozo and Winkler (2019) find that, in Colombia, an increase in internally displaced persons expands the informal sector, which in turn adversely affects the total output of the formal sector firms. Loayza (1996) suggests that a large informal economy may lower tax revenues and increase public service congestion.…”

Does Competition from Informal Firms Hurt Job Creation by Formal Firms? Evidence using Firm-Level Survey Data

“…However, they do not provide any empirical evidence to support this claim. Rozo and Winkler (2019) find that in Colombia, an increase in internally displaced persons (IDPs) adversely affected the total output of the formal sector firms. Their suggested interpretation is that an increase in IDPs entails an expansion of the informal sector, which in turn adversely affects the total output of firms in the formal sector.…”

Jobs, Access to Credit, and Informality in MENA Countries

“…Data from the World Bank Enterprise Survey (hereinafter, WBES) shows that 29% of MENA firms report to be exposed to competition from informal firms, with this share reaching more than 40% of firms in Lebanon and Tunisia. A large informal sector is a possible threat to the proper functioning of the economy and to the operation of formal firms which are negatively affected by the competition from informal ones (Distinguin et al, 2016;Rozo and Winkler, 2021;Avenyo et al, 2021).…”