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From informal to formal: an exploration of firm-level sectoral change in El Salvador

From informal to formal: an exploration of firm-level sectoral change in El Salvador Enterprises in developed and developing world environments often begin life in the informal sector operating outside the purview of government oversight. Sectoral firm change, however, from the informal to the formal sector is not well studied. The purpose of this paper is to answer the following research question: “What firm-level markers help explain the movement of firms from the informal to the formal sector?”Design/methodology/approachData from 719 urban formal enterprises included in the 2016 El Salvador Enterprise Survey undertaken by the World Bank forms the basis of the empirical analyses. The survey questionnaire comprehensively encompasses business practices and performance and the overall business environment.FindingsMultivariate results reveal location, firm maturity, problems with land acquisition, a line of credit or active business loan, extortion by street gangs and practices of informal competitors increase the odds of informal firms becoming formal enterprises. Lessening the odds of once informal firms moving to the formal sector include the lack of access to public utilities, visitation by tax officials, formation as a corporation, bank accounts, number of employees and time spent focused upon government regulations.Originality/valueContextualized within the national setting of El Salvador, the integration of informal enterprises into the formal economy and related public policy implications of informal firm regularization are discussed. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Academia Revista Latinoamericana de Administración Emerald Publishing

From informal to formal: an exploration of firm-level sectoral change in El Salvador

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1012-8255
DOI
10.1108/arla-03-2018-0071
Publisher site
See Article on Publisher Site

Abstract

Enterprises in developed and developing world environments often begin life in the informal sector operating outside the purview of government oversight. Sectoral firm change, however, from the informal to the formal sector is not well studied. The purpose of this paper is to answer the following research question: “What firm-level markers help explain the movement of firms from the informal to the formal sector?”Design/methodology/approachData from 719 urban formal enterprises included in the 2016 El Salvador Enterprise Survey undertaken by the World Bank forms the basis of the empirical analyses. The survey questionnaire comprehensively encompasses business practices and performance and the overall business environment.FindingsMultivariate results reveal location, firm maturity, problems with land acquisition, a line of credit or active business loan, extortion by street gangs and practices of informal competitors increase the odds of informal firms becoming formal enterprises. Lessening the odds of once informal firms moving to the formal sector include the lack of access to public utilities, visitation by tax officials, formation as a corporation, bank accounts, number of employees and time spent focused upon government regulations.Originality/valueContextualized within the national setting of El Salvador, the integration of informal enterprises into the formal economy and related public policy implications of informal firm regularization are discussed.

Journal

Academia Revista Latinoamericana de AdministraciónEmerald Publishing

Published: May 23, 2019

Keywords: Informality; Transition to formality; El Salvador; Informalidad; Transición a la formalidad; El Salvador; O17; O54

References