Who Fears Competition from Informal Firms? Evidence from Latin America
This paper investigates who is most affected by informal competition and how regulation and enforcement affect the extent and nature of this competition. Using newly-collected enterprise data for 6,466 manufacturing formal firms across 14 countries...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2012
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2007/08/8091496/fears-competition-informal-firms-evidence-latin-america http://hdl.handle.net/10986/7258 |
| Summary: | This paper investigates who is most
affected by informal competition and how regulation and
enforcement affect the extent and nature of this
competition. Using newly-collected enterprise data for 6,466
manufacturing formal firms across 14 countries in Latin
America, the authors show that formal firms affected by
head-to-head competition with informal firms largely
resemble them. They are small credit constrained,
underutilize their productive capacity, serve smaller
customers, and are in markets with low entry costs. In
countries where the government is effective and business
regulations onerous, formal firms in industries
characterized by low costs to entry feel the sting of
informal competition more than in other business
environments. Finally, the analysis finds that in an economy
with relatively onerous tax regulations and a government
that poorly enforces its tax code, the percentage of firms
adversely affected by informal competition will be reduced
from 38.8 to 37.7 percent when the government increases
enforcement to cover all firms. |
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