mies. Finally, it includes the set of individual background characteristics, Zioct, and Economic Census variables, EC1999; interacted with a linear time trend. Individuals who are never observed in the pre-reform period are dropped from this analysis, which makes the sample smaller than the one used to determine the main e¤ects above.

Panel A of Table 7 presents the regression results for this analysis. Column 1 shows that past informal business owners are no more likely to register their businesses after the reform. The e¤ect on past wage earners, on the other hand, is positive and statistically signi...cant at the 15.9 percent level. The coe¢ cient may not be more statistically signi...cant, because, as explained in the previous paragraph, the sample is smaller, lowering power.

Panel B of Table 7 shows the e¤ect on past wage earners, split up by whether they were low-risk or high-risk wage earners. The e¤ect is greater for low-risk wage earners, indicating that individuals who started a low-risk business after the reform were mostly working in lowrisk sectors before the reform. Overall, the ...ndings in Column 1 of Table 7 are consistent with the assumption of low productivity of the informal sector in the model in Section 3, and they are inconsistent with the high productivity assumption. The results thus suggests that the low-ability (residual sector) view of informal business owners is more appropriate than the De Soto view.

The model with the low productivity assumption also predicts that the wage earners who open a registered business should be the ones with the highest ability levels<sup>17</sup> . To test this, I would need an estimate of their ability. Unfortunately, the dataset does not include any good proxies for wage earners’ability. The only characteristic in the dataset that is speci...c to wage earners is whether a wage earner has a written contract or not. About 67.4 percent of wage earners had a written contract in the pre-reform period. In order to examine the e¤ect on wage earners in more detail, Table 8 shows the e¤ect broken down by past wage earners who had a written contract and who did not. The e¤ect is four times bigger for wage earners who did not have a written contract and is statistically signi...cant for this group.

Table 9 examines the e¤ect on di¤erent groups of non-registered business owners. For nonregistered business owners, the data include information on the number of employees in the ...rm. This variable is a possible proxy for entrepreneurial ability. Although 79.6 percent of informal business owners work alone, some do have employees or partners, and the ones who do may be the higher ability owners. Panel A of Table 9 reports the e¤ect on non-registered business owners who work alone and on non-registered business owners who have either partners or employees in the business. The coe¢ cients are highly statistically insigni...cant for both

> 17 A limitation of the model and its predictions is that they are based on the quite restrictive assumption that the ability relevant for wage work is the same as the ability relevant for opening a business. In future work, it would be interesting to estimate a full Roy model of occupational choice to determine whether the people who open a business are the ones with the highest return to opening a business.

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