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Explanatory factors behind formalizing non-farm household businesses in Vietnam

Author

Listed:
  • Jean-Pierre Cling

    (CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique)

  • Mireille Razafindrakoto

    (LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • François Roubaud

    (LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract

This article sets out to investigate the reasons why some household businesses decide to register and become formal (while others do not) in order to shed light on the origins of informality. We use qualitative as well as quantitative data on household businesses (HB) derived from first-hand representative surveys implemented in Hanoi and Ho Chi Minh city. The study reveals that although most of the informal businesses operate ‘illegally', this is more due to unclear registration legislation than the mark of a deliberate intention to evade the economic regulations.Among the different factors which influence the registration decisions, the reason for setting up the business appears to be a determining one: the more it is a real choice (businesses set up to be independent or to follow a family tradition) and the less a constraint (set up for lack of an job alternative), the more the HB is more inclined to be registered. Furthermore, the analysis highlights that incentives do prove decisive insofar as the probability of having a formal business is greater among HB heads who consider that registration provides at least partial protection from corruption. Besides, access to information, the market and large business orders also drive the informal entrepreneurs to register. These results stress the need for clarification of the legal framework as well as incentive policies in order to address the issue of informality.

Suggested Citation

  • Jean-Pierre Cling & Mireille Razafindrakoto & François Roubaud, 2017. "Explanatory factors behind formalizing non-farm household businesses in Vietnam," CEPN Working Papers hal-01664202, HAL.
    • Handle: RePEc:hal:cepnwp:hal-01664202
    Note: View the original document on HAL open archive server: https://hal.science/hal-01664202
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    References listed on IDEAS

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    12. Rand, John & Torm, Nina, 2012. "The Benefits of Formalization: Evidence from Vietnamese Manufacturing SMEs," World Development, Elsevier, vol. 40(5), pages 983-998.
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    Cited by:

    1. Tshepiso Gaetsewe, 2020. "Characteristics of Firms in Botswana's Informal Economy," Working Papers 74, Botswana Institute for Development Policy Analysis.

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    Keywords

    Informal Sector; Vietnam; Registration; Corruption; Incentives;
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