# **2 Data and the definition of a firm**

The number of firms can be directly determined using business registries, censuses, and surveys. This often requires that a firm has a fixed physical location associated to the firm. Although this is generally regarded as the gold standard for data on firms, these data are rarely available for developing countries, particularly in low-income regions of Africa.

Firms can also be assessed indirectly via information on employment. Following Coase (1937), a firm can be understood as the space where a relational contract occurs. Specifically, it is where someone, an employer, hires workers to perform a number of tasks. Under this characterization, _employers_ , regularly reported in labor and household surveys, can be assumed as a good approximation of a firm.

To put this definition into context, it is worth exploring other definitions. OECD defines a firm as “[...] a legal entity possessing the right to conduct business on its own, for example, to enter into contracts, own property, incur liabilities and establish bank accounts.”<sup>1</sup> The World Bank Enterprise Survey (WBES) defines it as the aggregation of _establishments_ , where the establishment is ”a physical location where business is carried out and where industrial operations take place or services are provided.” A firm may be composed of one or more establishments. In most cases, the WBES focuses on formally registered firms with five or more workers.<sup>2</sup> The World Bank’s Entrepreneurship Database (WBED) provides measures on registered firms across countries, which are defined as formally registered private companies with limited liability.

Formal status is an important dimension for the definition of firms in developing countries. However, to understand the broader universe of firms in the Africa context, we also need to incorporate informal businesses, given they represent a large share of the economy. There are very limited data available across African countries providing comprehensive measures of the formal and informal businesses that remain active.<sup>3</sup> An alternative to address the data limitation on firms is by using information on employer status. This approach allows the use of micro-level datasets (e.g., labor and household surveys) that are more widely available across Africa.

ILO defines employers as those workers who are self-employed and, in this capacity, have engaged one or more persons to work for them as employee(s). There is another group of selfemployed workers defined as own-account, who operates without hiring additional workers.

Our primary emphasis lies on the _employers_ category. This category is our definition of a “firm,” which we group between micro (with less than 5 workers, excluding own-account businesses), small (between 5 and 19 workers), medium (between 20 and 99 workers), and large (with 100 or more workers). In addition, we provide estimates of the number of own-account businesses, both formal and informal.

> 1Source: OECD Data.

> 2See for example “Enterprise Survey 2009-2017, Panel Data Liberia, 2009 - 2017”.

> 3WBED has recently incorporated information on the total number of registered and closed businesses, in addition to the number of new registrations. Comparison with external datasets suggests that business registry sources tend to provide robust estimations of the number of newly registered businesses, but they have more limitations when referring to the total number of active businesses.

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