Informality and Regulations: What Drives the Growth of Firms?

Era Dabla-Norris and Gabriela Inchauste

IMF Staff Papers, 2008, vol. 55, issue 1, 50-82

Abstract: This paper relies on rich firm-level data on transition economies to examine the role of informality as an important channel through which regulatory and other policy constraints affect firm growth. We find that firms reduce their formal operations with greater tax and regulatory burdens, but increase them with better enforcement quality. In terms of firm growth, we find a differential impact of regulatory burden and enforcement quality on formal and informal firm growth. In particular, we find that growth in formal firms is negatively affected by both tax and financing constraints, whereas these constraints are insignificant for growth in informal firms. Moreover, formal firm growth improves with better enforcement, while informal firm growth is constrained by organized crime, pointing to informal firms' inability to take full advantage of the legal and judicial systems. Finally, we find that an interaction term between a countrywide measure of the rule of law and formality is positive, suggesting that better rule of law improves formal firm growth. IMF Staff Papers (2008) 55, 50–82; doi:10.1057/palgrave.imfsp.9450030; published online 22 January 2008

Date: 2008
References: Add references at CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
http://www.palgrave-journals.com/imfsp/journal/v55/n1/pdf/9450030a.pdf Link to full text PDF (application/pdf)
http://www.palgrave-journals.com/imfsp/journal/v55/n1/full/9450030a.html Link to full text HTML (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:imfstp:v:55:y:2008:i:1:p:50-82

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/41308/PS2

Access Statistics for this article

More articles in IMF Staff Papers from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().