A Tale of Two Species : Revisiting the Effect of Registration Reform on Informal Business Owners in Mexico
Different views have been put forward to explain why most firms in developing countries operate informally. One view argues that informal-business owners are entrepreneurs who do not register their firm because the regulation process is too complex...
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
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| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20120221112635 http://hdl.handle.net/10986/3257 |
| Summary: | Different views have been put forward to
explain why most firms in developing countries operate
informally. One view argues that informal-business owners
are entrepreneurs who do not register their firm because the
regulation process is too complex. Another argues that
informal-business owners are people trying to make a living
while searching for a wage job. This paper contributes to
recent literature that argues that both factors are at work.
The author uses discriminant analysis to separate informal
business owners into two groups: those with personal
characteristics similar to wage workers, and those with
traits similar to formal-business owners. The paper then
examines how the two groups were affected by a business
registration reform in Mexico. Informal-business owners from
the second group were more likely to register their business
after the reform. By contrast, informal-business owners from
the first group were less likely to register but more likely
to become wage workers after the reform. This is consistent
with the finding in Bruhn (2008 and 2011) that the reform
led to job creation. It also explains why the earlier papers
find that the reform didn t affect the number of new
registrations by all informal business owners. |
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