The Impact of the Business Environment on the Formalization of Informal Firms. The Case of Kosovo

Zylfijaj Kujtim (), Nikoloski Dimitar and Tournois Nadine
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Zylfijaj Kujtim: Universum College, Rr. Imzot Nikprelaj, 10000Prishtina, Kosovo
Nikoloski Dimitar: Faculty of Economics of the University St. Kliment OhridskiKliment Ohridski, North Macedonia
Tournois Nadine: IAE-Graduate School of Management of the University Sophia Antipolis, Sophia AntipolisFrance

Comparative Southeast European Studies, 2020, vol. 68, issue 4, 505-529

Abstract: The research presented here investigates the impact of the business environment on the formalization of informal firms, using firm-level data for 243 informal firms in Kosovo. The findings indicate that business-environment variables such as limited access to financing, the cost of financing, the unavailability of subsidies, tax rates, and corruption have a significant negative impact on the formalization of informal firms. In addition, firm-level characteristics analysis suggests that the age of the firm also exercises a significant negative impact, whereas sales volume exerts a significant positive impact on the formalization of informal firms. These findings have important policy implications and suggest that the abolition of barriers preventing access to financing, as well as tax reforms and a consistent struggle against corruption may have a positive influence on the formalization of informal firms. On the other hand, firm owners should consider formalization to be a means to help them have greater opportunities for survival and growth.

Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:bpj:soeuro:v:68:y:2020:i:4:p:505-529:n:2

DOI: 10.1515/soeu-2020-0035

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