<table><caption>**Table A.1**</caption><caption>List of countries.</caption><tbody><tr><td>Afghanistan</td><td>Chad</td><td>Greece</td><td>Lithuania</td><td>Papua New Guinea</td><td>Suriname</td></tr><tr><td>Albania</td><td>Chile</td><td>Grenada</td><td>Madagascar</td><td>Paraguay</td><td>Tajikistan</td></tr><tr><td>Antigua and Barbuda</td><td>China</td><td>Guatemala</td><td>Malawi</td><td>Peru</td><td>Tanzania</td></tr><tr><td>Argentina</td><td>Colombia</td><td>Guinea</td><td>Malaysia</td><td>Philippines</td><td>Thailand</td></tr><tr><td>Armenia</td><td>Congo</td><td>Guyana</td><td>Mali</td><td>Poland</td><td>Timor-Leste</td></tr><tr><td>Azerbaijan</td><td>Costa Rica</td><td>Honduras</td><td>Malta</td><td>Portugal</td><td>Togo</td></tr><tr><td>Bahamas</td><td>Croatia</td><td>Hungary</td><td>Mauritania</td><td>Romania</td><td>Tonga</td></tr><tr><td>Bangladesh</td><td>Cyprus</td><td>India</td><td>Mauritius</td><td>Russia</td><td>Trinidad and Tobago</td></tr><tr><td>Belarus</td><td>Czechia</td><td>Indonesia</td><td>Mexico</td><td>Rwanda</td><td>Tunisia</td></tr><tr><td>Belize</td><td>Côte d'Ivoire</td><td>Iraq</td><td>Micronesia</td><td>Samoa</td><td>Türkiye</td></tr><tr><td>Benin</td><td>DRC</td><td>Israel</td><td>Moldova</td><td>Senegal</td><td>Uganda</td></tr><tr><td>Bhutan</td><td>Dominica</td><td>Italy</td><td>Mongolia</td><td>Serbia</td><td>Ukraine</td></tr><tr><td>Bolivia</td><td>Dominican Republic</td><td>Jamaica</td><td>Montenegro</td><td>Sierra Leone</td><td>Uruguay</td></tr><tr><td>Bosnia and Herzegovina</td><td>Ecuador</td><td>Jordan</td><td>Morocco</td><td>Slovak Republic</td><td>Uzbekistan</td></tr><tr><td>Botswana</td><td>Egypt</td><td>Kazakhstan</td><td>Mozambique</td><td>Slovenia</td><td>Vanuatu</td></tr><tr><td>Brazil</td><td>El Salvador</td><td>Kenya</td><td>Myanmar</td><td>Solomon Islands</td><td>Viet Nam</td></tr><tr><td>Bulgaria</td><td>Estonia</td><td>Kosovo</td><td>Nepal</td><td>South Africa</td><td>West Bank and Gaza</td></tr><tr><td>Burkina Faso</td><td>Eswatini</td><td>Kyrgyz Republic</td><td>Nicaragua</td><td>Spain</td><td>Zambia</td></tr><tr><td>Burundi</td><td>Fiji</td><td>Lao PDR</td><td>Niger</td><td>Sri Lanka</td><td>Zimbabwe</td></tr><tr><td>Cambodia</td><td>Gabon</td><td>Latvia</td><td>Nigeria</td><td>St. Kitts and Nevis</td><td></td></tr><tr><td>Cameroon</td><td>Gambia</td><td>Lebanon</td><td>North Macedonia</td><td>St. Lucia</td><td></td></tr><tr><td>Cape Verde</td><td>Georgia</td><td>Lesotho</td><td>Pakistan</td><td>St. Vin. and the Gren. Sudan</td><td></td></tr><tr><td>Central African Republic</td><td>Ghana</td><td>Liberia</td><td>Panama</td><td></td><td></td></tr></tbody></table>

<table><caption>**Table A.2**</caption><caption>Correlation matrix of the baseline variables.</caption><thead><tr><th></th><th>(1)</th><th>(2)</th><th>(3)</th><th>(4)</th><th>(5)</th><th>(6)</th><th>(7)</th><th>(8)</th><th>(9)</th><th>(10)</th></tr></thead><tbody><tr><td>(1) Credit constraints</td><td>1</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>(2) Past informality</td><td>0.096***</td><td>1</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>(3) Firm size</td><td>-0.153***</td><td>-0.112***</td><td>1</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>(4) Firm age</td><td>-0.077***</td><td>0.045***</td><td>0.258***</td><td>1</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>(5) Sector of activity</td><td>0.027***</td><td>0.040***</td><td>0.184***</td><td>0.127***</td><td>1</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>(6) Affiliation with a large firm</td><td>-0.055***</td><td>-0.041***</td><td>0.214***</td><td>0.076***</td><td>-0.037***</td><td>1</td><td></td><td></td><td></td><td></td></tr><tr><td>(7) Private foreign ownership</td><td>-0.052***</td><td>-0.051***</td><td>0.223***</td><td>-0.003</td><td>0.009***</td><td>0.141***</td><td>1</td><td></td><td></td><td></td></tr><tr><td>(8) Real GDP per capita</td><td>-0.183***</td><td>-0.141***</td><td>0.074***</td><td>0.110***</td><td>0.018***</td><td>-0.037***</td><td>-0.066***</td><td>1</td><td></td><td></td></tr><tr><td>(9) Inflation</td><td>0.047***</td><td>0.019***</td><td>-0.021***</td><td>-0.024***</td><td>0.030***</td><td>-0.033***</td><td>-0.028***</td><td>-0.010***</td><td>1</td><td></td></tr><tr><td>(10) Domestic credit to the private sector</td><td>-0.124***</td><td>-0.107***</td><td>0.118***</td><td>0.060***</td><td>0.044***</td><td>0.018***</td><td>-0.055***</td><td>0.466***</td><td>-0.252***</td><td>1</td></tr></tbody></table>

<table><caption>**Table A.3**</caption><caption>Descriptive statistics of the baseline variables.</caption><thead><tr><th></th><th>Observations</th><th>Mean</th><th>Standard deviation</th><th>Minimum</th><th>Maximum</th></tr></thead><tbody><tr><td>Credit constraints</td><td>134,050</td><td>0.339</td><td></td><td>0</td><td>1</td></tr><tr><td>Past informality</td><td>134,050</td><td>0.101</td><td></td><td>0</td><td>1</td></tr><tr><td>Firm size</td><td>134,050</td><td>3.409</td><td>1.335</td><td>0</td><td>12.030</td></tr><tr><td>Firm age</td><td>134,050</td><td>2.752</td><td>0.723</td><td>0</td><td>5.832</td></tr><tr><td>Sector of activity</td><td>134,050</td><td>0.564</td><td></td><td>0</td><td>1</td></tr><tr><td>Affiliation with a large firm</td><td>134,050</td><td>0.163</td><td></td><td>0</td><td>1</td></tr><tr><td>Private foreign ownership</td><td>134,050</td><td>0.423</td><td>1.275</td><td>0</td><td>4.615</td></tr><tr><td>Real GDP per capita</td><td>134,050</td><td>9.358</td><td>0.871</td><td>6.914</td><td>10.883</td></tr><tr><td>Inflation</td><td>134,050</td><td>6.095</td><td>6.639</td><td>-21.165</td><td>54.013</td></tr><tr><td>Domestic credit to the private sector</td><td>134,050</td><td>3.547</td><td>0.798</td><td>-5.270</td><td>4.985</td></tr></tbody></table>

We do not report the standard errors of binary variables as they do not have a practical interpretation.

**Domestic credit to the private sector:** Domestic credit to the private sector as a percentage of GDP (in natural logarithm). Source: WDI.

**Manager's experience:** Natural logarithm of the number of years the top manager has worked in the firm's sector. Source: WBES.

**Manager's gender:** Binary variable equal to 1 if the manager is a woman, and 0 if he is a man. Source: WBES.

**Total sales:** Natural logarithm of the firm's total annual sales. Source: WBES.

**Firm's export capacity:** Direct exports as a percentage of sales (in natural logarithm). Source: WBES.

**Criminality:** Binary variable equal to 1 if the firm experienced losses in the last fiscal year due to theft, robbery, vandalism, arson on its premises or from internet hacking or fraudulent internet transactions, and 0 otherwise. Source: WBES.

**Taxation:** Total tax and contribution rate as a percentage of profit (in natural logarithm). Source: WDI.

<footnote>* *p* < 0.10, ** *p* < 0.05, *** *p* < 0.01.</footnote>
<table><caption>**Table A.4**
Descriptive statistics of the additional controls.</caption><thead><tr><th></th><th>Observations</th><th>Mean</th><th>Standard deviation</th><th>Minimum</th><th>Maximum</th></tr></thead><tbody><tr><td>Manager's experience</td><td>131,533</td><td>2.781</td><td>0.670</td><td>0</td><td>4.331</td></tr><tr><td>Manager's gender</td><td>117,631</td><td>0.157</td><td></td><td>0</td><td>1</td></tr><tr><td>Total sales</td><td>119,346</td><td>16.787</td><td>3.203</td><td>0</td><td>35.532</td></tr><tr><td>Firm's export capacity</td><td>133,111</td><td>0.618</td><td>1.371</td><td>0</td><td>4.615</td></tr><tr><td>Criminality</td><td>133,218</td><td>0.177</td><td></td><td>0</td><td>1</td></tr><tr><td>Taxation</td><td>116,661</td><td>3.701</td><td>0.429</td><td>2.001</td><td>5.826</td></tr><tr><td>Real lending interest rate</td><td>106,806</td><td>6.729</td><td>7.615</td><td>-10.447</td><td>50.760</td></tr><tr><td>Interest rate spread</td><td>95,849</td><td>6.637</td><td>7.001</td><td>-8.516</td><td>48.834</td></tr><tr><td>Bank NPLs</td><td>100,308</td><td>1.422</td><td>0.751</td><td>-0.290</td><td>3.922</td></tr><tr><td>Real GDP growth</td><td>134,050</td><td>4.197</td><td>3.419</td><td>-14.629</td><td>14.620</td></tr><tr><td>Unemployment</td><td>132,750</td><td>1.780</td><td>0.683</td><td>-0.826</td><td>3.368</td></tr><tr><td>FDI</td><td>133,988</td><td>4.246</td><td>10.109</td><td>-5.853</td><td>203.625</td></tr><tr><td>Gross fixed capital formation</td><td>126,658</td><td>3.113</td><td>0.281</td><td>2.258</td><td>3.967</td></tr><tr><td>Banking accessibility</td><td>131,638</td><td>2.394</td><td>0.978</td><td>-3.219</td><td>4.525</td></tr><tr><td>New business density</td><td>109,396</td><td>-0.109</td><td>1.501</td><td>-4.399</td><td>3.208</td></tr><tr><td>Remittances</td><td>134,050</td><td>1.346</td><td>0.902</td><td>0</td><td>3.809</td></tr><tr><td>Public spending</td><td>103,197</td><td>3.106</td><td>0.413</td><td>1.943</td><td>4.291</td></tr><tr><td>Urbanization</td><td>133,386</td><td>3.952</td><td>0.399</td><td>2.466</td><td>4.556</td></tr><tr><td>Debt</td><td>113,237</td><td>2.825</td><td>0.831</td><td>0</td><td>4.726</td></tr><tr><td>Corruption</td><td>134,050</td><td>-0.395</td><td>0.606</td><td>-1.463</td><td>1.525</td></tr></tbody></table>

NPLs: nonperforming loans. We do not report the standard errors of binary variables as they do not have a practical interpretation.

**Real lending interest rate:** Lending interest rate adjusted for inflation (in percentage). Source: WDI.

**Interest rate spread:** Interest rate charged by banks on loans to private sector customers minus the interest rate paid by commercial or similar banks for demand, time, or savings deposits (in percentage). Source: WDI.

**Bank NPLs:** Bank nonperforming loans (NPLs) as a percentage of total gross loans (in natural logarithm). Source: WDI.

**Real GDP growth:** Annual percentage growth rate of GDP based on constant 2015 U.S. dollars. Source: WDI.

**Unemployment:** Share of the total labor force that is unemployed but available for and seeking employment (in natural logarithm). Source: WDI.

**FDI:** Foreign direct investment net inflows as a percentage of GDP. Source: WDI.

**Gross fixed capital formation:** Gross fixed capital formation as a percentage of GDP (in natural logarithm). Source: WDI.

**Banking accessibility:** Natural logarithm of the number of commercial bank branches per 100,000 adults. Source: WDI.

**New business density:** Natural logarithm of new business density, measured as new business registrations per 1,000 people aged 15–64. Source: WDI.

**Remittances:** Personal remittances received as a percentage of GDP (in natural logarithm). Source: WDI.

**Public spending:** Measured by government expenditure as a percentage of GDP (in natural logarithm). Source: WDI.

**Urbanization:** Urban population as a percentage of the total population (in natural logarithm). Source: WDI.

**Debt:** Short-term debt as a percentage of exports of goods, services, and primary income (in natural logarithm). Source: WDI.

**Corruption:** Control of corruption indicator. Source: Worldwide Governance Indicators (WGI) database developed by Kaufmann et al. (2010). Internet link to access the WGI: https://www.govindicators.org/

**Quality of regulation:** Regulatory quality indicator. Source: WGI.

**Trade openness:** Sum of exports and imports of goods and services as a percentage of GDP (in natural logarithm). Source: WDI.

**Productivity:** Natural logarithm of the ratio of turnover to the total number of full-time employees, adjusted for temporary workers. Source: WBES.

**Competition from the informal sector:** Binary variable equal to 1 if the firm faces competitors from the informal sector, and 0 otherwise. Source: WBES.

**Quality of financial statements:** Binary variable equal to 1 if the firm has its annual financial statements audited and certified by an external auditor, and 0 otherwise. Source: WBES.

**First alternative measure of credit constraints:** Binary variable equal to 1 if the firm reports access to finance as an obstacle (minor, moderate, major, or very severe), and 0 if it does not consider it an obstacle. Source: WBES.

**Second alternative measure of credit constraints:** Binary variable equal to 1 if access to finance is reported as a moderate, major, or very severe obstacle, and 0 otherwise. Source: WBES.

**Third alternative measure of credit constraints:** Binary variable equal to 1 if access to finance is reported as a major or very severe obstacle, and 0 otherwise. Source: WBES.

**IV:** Percentage of registered firms with past informality status in the country, excluding the observation for the firm under consideration (“cell-average method”). Source: WBES.

## Appendix C

See Tables C.1–C.3.
<caption>Table C.1</caption>

Covariate balance when combining PSM with linear regression.

<table><caption>Table C.2</caption><thead><tr><th rowspan="2"></th><th colspan="2">Absolute standardized mean difference</th></tr><tr><th>(1)<br>Before weighting</th><th>(2)<br>After weighting</th></tr></thead><tbody><tr><td>Firm size</td><td>0.391</td><td>0.057</td></tr><tr><td>Firm age</td><td>0.150</td><td>0.003</td></tr><tr><td>Sector of activity</td><td>0.134</td><td>0.018</td></tr><tr><td>Affiliation with a large firm</td><td>0.144</td><td>0.018</td></tr><tr><td>Private foreign ownership</td><td>0.188</td><td>0.019</td></tr><tr><td>Real GDP per capita</td><td>0.475</td><td>0.066</td></tr><tr><td>Inflation</td><td>0.057</td><td>0.010</td></tr><tr><td>Domestic credit to the private sector</td><td>0.342</td><td>0.055</td></tr></tbody></table>

Covariate balance when combining IPTW with linear regression.

<table><caption>Table C.3</caption><thead><tr><th rowspan="2"></th><th colspan="2">Absolute standardized mean difference</th></tr><tr><th>(1)<br>Before weighting</th><th>(2)<br>After weighting</th></tr></thead><tbody><tr><td>Firm size</td><td>0.391</td><td>0.040</td></tr><tr><td>Firm age</td><td>0.150</td><td>0.032</td></tr><tr><td>Sector of activity</td><td>0.134</td><td>0.093</td></tr><tr><td>Affiliation with a large firm</td><td>0.144</td><td>0.017</td></tr><tr><td>Private foreign ownership</td><td>0.188</td><td>0.024</td></tr><tr><td>Real GDP per capita</td><td>0.475</td><td>0.050</td></tr><tr><td>Inflation</td><td>0.057</td><td>0.009</td></tr><tr><td>Domestic credit to the private sector</td><td>0.342</td><td>0.039</td></tr></tbody></table>

Robustness checks: Clustering standard errors at the country level.

<table><thead><tr><th></th><th>(1)</th><th>(2)</th><th>(3)</th><th>(4)</th><th>(5)</th><th>(6)</th><th>(7)</th><th>(8)</th><th>(9)</th><th>(10)</th></tr></thead><tbody><tr><td>Past informality</td><td>0.079***<br>(0.020)</td><td>0.075***<br>(0.013)</td><td>0.052***<br>(0.008)</td><td>0.051***<br>(0.008)</td><td>0.051***<br>(0.008)</td><td>0.079***<br>(0.016)</td><td>0.074***<br>(0.011)</td><td>0.057***<br>(0.008)</td><td>0.056***<br>(0.008)</td><td>0.055***<br>(0.007)</td></tr><tr><td>Covariates in the second step</td><td>No</td><td>No</td><td>No</td><td>No</td><td>No</td><td>Yes</td><td>Yes</td><td>Yes</td><td>Yes</td><td>Yes</td></tr><tr><td>Year fixed effects in the second step</td><td>No</td><td>Yes</td><td>No</td><td>Yes</td><td>No</td><td>No</td><td>Yes</td><td>No</td><td>Yes</td><td>No</td></tr><tr><td>Country fixed effects in the second step</td><td>No</td><td>No</td><td>Yes</td><td>Yes</td><td>No</td><td>No</td><td>No</td><td>Yes</td><td>Yes</td><td>No</td></tr><tr><td>Country-sector-year fixed effects in the second step</td><td>No</td><td>No</td><td>No</td><td>No</td><td>Yes</td><td>No</td><td>No</td><td>No</td><td>No</td><td>Yes</td></tr><tr><td>Observations</td><td>134,050</td><td>134,050</td><td>134,050</td><td>134,050</td><td>134,050</td><td>134,050</td><td>134,050</td><td>134,050</td><td>134,050</td><td>134,050</td></tr></tbody></table>

Constant terms are included but not reported for brevity. Standard errors, shown in parentheses, are clustered at the country level. \* *p* < 0.10, \*\* *p* < 0.05, \*\*\* *p* < 0.01.

## Data availability

The data are available upon request.

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