Who Fears Competition from Informal Firms? Evidence from Latin America

This paper investigates who is most affected by informal competition and how regulation and enforcement affect the extent and nature of this competition. Using newly-collected enterprise data for 6,466 manufacturing formal firms across 14 countries in Latin America, the authors show that formal firms affected by head-to-head competition with informal firms largely resemble them. They are small credit constrained, underutilize their productive capacity, serve smaller customers, and are in markets with low entry costs. In countries where the government is effective and business regulations onerous, formal firms in industries characterized by low costs to entry feel the sting of informal competition more than in other business environments. Finally, the analysis finds that in an economy with relatively onerous tax regulations and a government that poorly enforces its tax code, the percentage of firms adversely affected by informal competition will be reduced from 38.8 to 37.7 percent when the government increases enforcement to cover all firms.

Bibliographic Details

Main Authors:	González, Alvaro S., Lamanna, Francesca
Language:	English
Published:	World Bank, Washington, DC 2007-08
Subjects:	ACCOUNTABILITY, ACCOUNTING, ADVERSE EFFECTS, BENCHMARK, BUSINESS ACTIVITIES, BUSINESS ENTRY, BUSINESS ENVIRONMENT, BUSINESS ENVIRONMENTS, BUSINESS INDICATOR, BUSINESS INDICATORS, BUSINESS REGULATIONS, BUSINESS RELATIONSHIPS, BUSINESS TO BUSINESS, BUSINESSES, BUYER, BUYERS, CAPITAL INTENSITY, CAPITAL REQUIREMENT, CENTRAL AMERICA, COMMERCIAL BUSINESS, COMMERCIAL CREDIT, COMMERCIAL OPERATIONS, COMPANY, COMPETITIVENESS, COMPETITORS, CORRELATION MATRIX, COST DIFFERENTIALS, COST OF ENTRY, COUNTRY COMPARISONS, COUNTRY FIXED EFFECTS, CREDIT CONSTRAINT, CREDIT LINES, CUSTOMS, DEPOSIT, DEVELOPING COUNTRIES, DEVELOPMENT ECONOMICS, ECONOMIC ACTIVITY, ECONOMIC DEVELOPMENT, ECONOMIC GEOGRAPHY, ECONOMIC PERFORMANCE, ECONOMIES OF SCALE, ELECTRICITY, EMAILS, EMPLOYMENT, ENTERPRISE SURVEY, ENTERPRISE SURVEYS, ENTREPRENEUR, EQUIPMENT, EXPORT MARKETS, EXPORTS, EXTERNAL FINANCE, EXTERNAL FINANCING, FINANCIAL INSTITUTION, FINANCIAL MARKETS, FINANCIAL SERVICES, FIRM PERFORMANCE, FIRM SIZE, FIRMS, FIXED COST, FIXED COSTS, GDP, GOVERNANCE INDICATOR, GOVERNANCE INDICATORS, GOVERNMENT REGULATION, INCOME LEVELS, INCOME TAX, INFORMAL ECONOMY, INSTITUTIONAL FRAMEWORK, INVESTMENT CLIMATE, JOB CREATION, LATIN AMERICAN, LAWS, LEGAL PROTECTION, LESS DEVELOPED COUNTRIES, LICENSE, LICENSES, LICENSING, LIMITED ACCESS, LINE OF CREDIT, LINES OF CREDIT, LOAN, LOW-INCOME COUNTRIES, MANUFACTURERS, MANUFACTURING, MANUFACTURING INDUSTRIES, MARKET OPPORTUNITIES, MENU, MIDDLE INCOME COUNTRY, NATIONAL INCOME, OUTPUT, OUTPUTS, PER CAPITA INCOME, POLICY FORMULATION, POLITICAL STABILITY, POWER OUTAGES, PRICE COMPETITION, PRIVATE ENTITIES, PRIVATE SECTOR, PRIVATE SECTOR DEVELOPMENT, PRODUCTIVITY, PRODUCTIVITY GROWTH, QUALITY OF SERVICES, RADIO, RED TAPE, REGULATORY BURDENS, REGULATORY ENVIRONMENT, REGULATORY REQUIREMENTS, RESULT, RESULTS, SAVINGS, SMALL FIRMS, SOUTH AMERICA, SOUTH AMERICAN, STARTUP, SUPPLIERS, TAX, TAX ADMINISTRATION, TAX CODE, TAX RATE, TAX RATES, TAX_RATE, TAXATION, TELEVISION, THIRD WORLD, TRANSPORT, USERS, VENDORS, VERIFICATIONS, WEB, WORLD ECONOMY,
Online Access:	http://documents.worldbank.org/curated/en/2007/08/8091496/fears-competition-informal-firms-evidence-latin-america https://hdl.handle.net/10986/7258
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