What Determines Firms' Decisions to Formalize? Empirical Evidence from Rural Indonesia

Neil McCulloch (), Günther Schulze and Janina Voss

No 32, Proceedings of the German Development Economics Conference, Frankfurt a.M. 2009 from Verein für Socialpolitik, Research Committee Development Economics

Abstract: In this paper we analyze the decision of small and micro firms to formalize, i.e. to obtain business and other licenses in rural Indonesia. We use the rural investment climate survey (RICS) that comprises around 2500 non-farm rural enterprises in six Indonesian districts and analyze in an IV approach the effect of formalization on tax payments, corruption, access to credit and revenue. We take firm heterogeneity into account and show how the effect of formalization depends on firm characteristics such as firm size, education and ethnicity of the owner. We identify firm and owner characteristics that make formalization more likely.

Keywords: Formalization; rural development; rural investment climate (search for similar items in EconPapers)
JEL-codes: O17 O18 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (2)

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