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Informality, Size, and Regulation: Theory and an Application to Egypt

Author

Listed:
  • Marcelo M. Giugale
  • Sherif El-Diwany

Abstract

The paper shows how, when the enforceability of regulations is size-sensitive, price competition can lock firms into informality and, thus, smallness, depending on the form of the production function. In that context, exogenous "help" packages targeted to informal firms "promote" micro and small enterprises (i.e., increase their numbers) but do not "develop" them (i.e., foster their growth). The "help" only generates a short-term span of abnormal profits for existing informal firms, and a long-term income transfer toward informal-market consumers. The model is tested in the context of Egypt's micro and small enterprise sector.

Suggested Citation

  • Marcelo M. Giugale & Sherif El-Diwany, 1997. "Informality, Size, and Regulation: Theory and an Application to Egypt," Center for Agricultural and Rural Development (CARD) Publications 97-wp185, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    • Handle: RePEc:ias:cpaper:97-wp185
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    Citations

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    Cited by:

    1. World Bank, 2009. "Increasing Formality and Productivity of Bolivian Firms," World Bank Publications - Books, The World Bank Group, number 2675.
    2. World Bank, 2008. "Bolivia : Policies for Increasing Firms’ Formality and Productivity," World Bank Publications - Reports 8003, The World Bank Group.

    More about this item

    Keywords

    Informality; Size; Regulation; Egypt; Hide-outs.;
    All these keywords.

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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