Is Informality Good for Business? The Impacts of IDP Inflows on Formal Firms

63 Pages Posted: 8 Aug 2016 Last revised: 27 Sep 2019

See all articles by Sandra Rozo

Sandra Rozo

University of Southern California - Marshall School of Business; University of Southern California - Schaeffer Center for Health Policy and Economics

Hernan Winkler

World Bank

Date Written: August 5, 2016

Abstract

This article examines the effects of large inflows of internally displaced persons (IDP), who are primarily absorbed by the informal sector, on the behavior of formal manufacturing firms in Colombia. To identify causal effects, we employ annual firm-level panel data between 1995 and 2010 and exploit the fact that, when conflict intensifies, forcefully displaced individuals tend to migrate to municipalities where people from their origin locations settled earlier. We find that large inflows of IDP induce sizable negative effects on the intensive and extensive margins of production of formal firms. These effects are stronger for firms operating in sectors that face a stronger competition from the informal economy.

Keywords: Forced Migration, Firms, Informality

JEL Classification: D22, J61, O17

Suggested Citation

Rozo, Sandra and Winkler, Hernan Jorge, Is Informality Good for Business? The Impacts of IDP Inflows on Formal Firms (August 5, 2016). Available at SSRN: https://ssrn.com/abstract=2819225 or http://dx.doi.org/10.2139/ssrn.2819225

Sandra Rozo (Contact Author)

University of Southern California - Marshall School of Business ( email )

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United States

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

University of Southern California - Schaeffer Center for Health Policy and Economics ( email )

635 Downey Way
Los Angeles, CA 90089-3333
United States

Hernan Jorge Winkler

World Bank ( email )

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Washington, DC 20433
United States

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