Informality and regulations
Subtitle: what drives firm growth?
By: prepared by Era Dabla-Norris and Gabriela Inchauste.
Contributors: Inchauste, Gabriela.; International Monetary Fund. Middle East and Central Asia Dept.; IMF Institute.
Series: IMF working paper -- WP/07/112
Publisher: International Monetary Fund
Published: 2007
Place of publication: [Washington, D.C.]
Language: eng
Number of pages: 26
Subjects: Informal sector (Economics) -- Developing countries.; Business enterprises -- Developing countries.
Description: "The paper relies on a rich firm-level data set on transition economies to examine the role of informality as an important channel through which regulatory and other policy constraints affect firm growth. We find that firms reduce their formal operations with a higher tax and regulatory burden, but increase it with better enforcement quality. In terms of firm growth, we find a differential impact of regulatory burden and enforcement quality on formal and informal firms. In particular, we find that growth in formal firms is negatively affected by both tax and financing constraints, while these constraints are insignificant for growth in informal firms. Moreover, formal firm growth improves with better enforcement as measured by fair and impartial courts, while informal firm growth is constrained by organized crime, pointing to their inability to take full advantage of the legal and judicial systems. Finally, when we look at country-wide institutions, we find that higher regulatory burden reduces firm growth. An interactive term between a country-wide measure of the rule of law and a proxy for formality suggests that better enforcement quality dampens the relatively weaker growth in formal firms."--Abstract.
Notes: Caption title.

"May 2007."

"Middle East and Central Asia and IMF Institute"

Includes bibliographical references (p. 25-26).