Do Financially Constrained Firms Suffer from More Intense Competition by the Informal Sector? Firm-Level Evidence from the World Bank Enterprise Surveys

Julia Friesen and Konstantin Wacker
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Julia Friesen: Georg-August-University Göttingen

No 139, Courant Research Centre: Poverty, Equity and Growth - Discussion Papers from Courant Research Centre PEG

Abstract: This paper investigates which firms suffer from informal competition and highlights the role of access to finance in this context. We use cross-sectional data from the World Bank Enterprise Surveys covering 42,000 firms in 114 developing and transition countries for the period 2006 to 2011 and take discrete responses on the perceived severity of financial constraints and informal competition for our empirical analysis. We find that financially constrained firms face significantly more intense competition by the informal sector and that this effect is economically large. In fact, financial constraints are the most important reason why firms suffer from informal competition. Other influential variables are ill-designed labor market regulations, corruption, and firm size. A wide range of robustness checks substantiates this finding.

Keywords: Firm finance; informal competition; enterprise survey data; ordered logit model (search for similar items in EconPapers)
JEL-codes: C25 D21 O17 (search for similar items in EconPapers)
Date: 2013-05-21
New Economics Papers: this item is included in nep-bec, nep-com, nep-dcm, nep-ifn and nep-iue
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Persistent link: https://EconPapers.repec.org/RePEc:got:gotcrc:139

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