American Economic Journal:
Applied Economics
ISSN 1945-7782 (Print) | ISSN 1945-7790 (Online)
The Demand for, and Consequences of, Formalization among Informal Firms in Sri Lanka
American Economic Journal: Applied Economics
vol. 5,
no. 2, April 2013
(pp. 122–50)
Abstract
A field experiment in Sri Lanka provides informal firms incentives to formalize. Information about the registration process and reimbursement of direct costs does not increase registration. Payments equivalent to one-half to one month (alternatively, two months) of the median firm's profits leads to registration of around one-fifth (alternatively, one-half ) of firms. Land ownership issues are the most common reason for not registering. Follow-up surveys 15 to 31 months later show higher mean profits, but largely in a few firms that grew rapidly. We find little evidence for other changes in behavior, but formalized firms express more trust in the state. (JEL C93, D22, L25, L26, O14)Citation
de Mel, Suresh, David McKenzie, and Christopher Woodruff. 2013. "The Demand for, and Consequences of, Formalization among Informal Firms in Sri Lanka." American Economic Journal: Applied Economics, 5 (2): 122–50. DOI: 10.1257/app.5.2.122Additional Materials
JEL Classification
- C93 Field Experiments
- D22 Firm Behavior: Empirical Analysis
- L25 Firm Performance: Size, Diversification, and Scope
- L26 Entrepreneurship
- O14 Industrialization; Manufacturing and Service Industries; Choice of Technology
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