Entry Regulation and Formalization of Microenterprises in Developing Countries

18 Pages Posted: 20 Apr 2016

See all articles by Miriam Bruhn

Miriam Bruhn

World Bank - Development Research Group (DECRG)

David J. McKenzie

World Bank - Development Research Group (DECRG); IZA Institute of Labor Economics

Date Written: June 1, 2013

Abstract

The majority of microenterprises in most developing countries remain informal despite more than a decade of reforms aimed at making it easier and cheaper for them to formalize. This paper summarizes the evidence on the effects of entry reforms and related policy actions to promote firm formalization. Most of these policies result only in a modest increase in the number of formal firms, if at all. Less is known about the impact of other forms of business regulations on the performance of low-scale enterprises. Most informal firms appear not to benefit on net from formalizing, so ease of formalization alone will not lead to most of them formalizing. Increased enforcement of rules can increase formality. Although there is a fiscal benefit of doing this with larger informal firms, it is unclear whether there is a public rationale for trying to formalize subsistence enterprises.

Keywords: Microfinance, Small Scale Enterprise, E-Business, Business in Development, Competitiveness and Competition Policy

Suggested Citation

Bruhn, Miriam and McKenzie, David John, Entry Regulation and Formalization of Microenterprises in Developing Countries (June 1, 2013). World Bank Policy Research Working Paper No. 6507. Available at SSRN: https://ssrn.com/abstract=2285973

Miriam Bruhn (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

David John McKenzie

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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