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Estimating the Effects of Formality on Mexican Informal Microfirms. A Joint Multivariate Approach

Author

Listed:
  • Sonia Di Giannatale

    (Associate professor of Economics, Department of Economics, CIDE. Mexico City. Mexico.)

  • Gibrán Ramírez-Abarca

    (Director, Department of Public Policies for Productivity, Secretaría de Hacienda y Crédito Público. Mexico City. Mexico.)

  • Ricardo Smith

    (Adjunct professor of Economics, Department of Economics, CIDE. Mexico City. Mexico.)

Abstract

In this article we use a multivariate framework to estimate net profits and levels of capital and labor for informal Mexican microfirms had they been formal. We estimate a Roy model to simultaneously model three different microfirm responses conditional on the sector (formal or informal) choice. Responses include profits and levels of labor and capital to be used in each sector. Our results indicate that the formal counterfactuals of currently informal microfirms employ higher levels of labor and physical capital; yet, they do not earn higher profits.

Suggested Citation

  • Sonia Di Giannatale & Gibrán Ramírez-Abarca & Ricardo Smith, 2013. "Estimating the Effects of Formality on Mexican Informal Microfirms. A Joint Multivariate Approach," Economía Mexicana NUEVA ÉPOCA, CIDE, División de Economía, vol. 0(4, Cierre), pages 441-463.
    • Handle: RePEc:emc:ecomex:v:22:y:2013:i:4:p:441-463
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    File URL: http://www.economiamexicana.cide.edu/num_anteriores/Cierre-2/04_EM_(DOS)_Sonia_Di_Giannatale_(441-463).pdf
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    Citations

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    Cited by:

    1. Julio Cesar Leal Ordonez, 2014. "Tax collection, the informal sector, and productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(2), pages 262-286, April.
    2. M. Ali Choudhary & Saima Mahmood & Gylfi Zoega, 2015. "Informal Labour Markets in Pakistan," BCAM Working Papers 1504, Birkbeck Centre for Applied Macroeconomics.
    3. Santanu Chatterjee & Mark C. Kelly & Stephen J. Turnovsky, 2022. "Foreign aid, public investment, and the informal economy," Economic Inquiry, Western Economic Association International, vol. 60(1), pages 174-201, January.

    More about this item

    Keywords

    microfirm behavior; informal sector; Roy model; developing economies.;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • D2 - Microeconomics - - Production and Organizations
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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