Incentivizing Gray Market Entrepreneurs in Emerging Markets

42 Pages Posted: 13 May 2016 Last revised: 16 Dec 2016

See all articles by Kevin Fandl

Kevin Fandl

Temple University - Fox School of Business and Management

Juana Bustamante Izquierdo

Independent

Date Written: May 11, 2016

Abstract

Economic growth and development depends to a large extent on a fair marketplace, whereby all firms play by the same rules. Effective rule of law and strong regulatory enforcement regimes make this possible in most developed countries. Emerging markets are much less successful in regulating firms, leading to extensive informal economies replete with unregulated firms. These unregulated firms undercut the market by evading the costs associated with legitimate firm operations, skirting taxation and discouraging investment in the formal marketplace. Many emerging market governments have responded to this problem with formalization programs aimed at incentivizing the movement of informal firms into the formal economy. In this paper, we assess a recent and comprehensive formalization program to evaluate its strategy and success. We conclude that an inventivization program, like this one, aimed at reducing the costs of doing business, misses the underlying structural deficiencies that lead to high levels of informality. We recommend a more nuanced approach that addresses productivity before attempting to formalize microenterprises.

Keywords: informal economy, entrepreneur, gray market, regulation, colombia

Suggested Citation

Fandl, Kevin and Bustamante Izquierdo, Juana, Incentivizing Gray Market Entrepreneurs in Emerging Markets (May 11, 2016). Northwestern Journal of International Law & Business, Forthcoming; Fox School of Business Research Paper No. 16-034. Available at SSRN: https://ssrn.com/abstract=2778755

Kevin Fandl (Contact Author)

Temple University - Fox School of Business and Management ( email )

Philadelphia, PA 19122
United States
2027255305 (Phone)

HOME PAGE: http://www.kevinfandl.com

Juana Bustamante Izquierdo

Independent ( email )

No Address Available

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