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Formalization and productivity: Firm-level evidence from Viet Nam

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  • Jann Lay
  • Tevin Tafese

Abstract

Using a firm-level panel dataset on private small- and medium-sized enterprises (SMEs) in Viet Nam's manufacturing sector, this paper examines productivity dynamics of formal and informal firms. We decompose productivity changes into changes within and between formal and informal firms. We assess the contributions of firm entry and exit as well as informal-formal transitions. Our results show that productivity is considerably lower and misallocation more prevalent in the informal than in the formal sector.

Suggested Citation

  • Jann Lay & Tevin Tafese, 2020. "Formalization and productivity: Firm-level evidence from Viet Nam," WIDER Working Paper Series wp-2020-164, World Institute for Development Economic Research (UNU-WIDER).
    • Handle: RePEc:unu:wpaper:wp-2020-164
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    File URL: https://www.wider.unu.edu/sites/default/files/Publications/Working-paper/PDF/wp2020-164.pdf
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    References listed on IDEAS

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    1. Jean-Pierre Cling & Mireille Razafindrakoto & François Roubaud, 2012. "Explanatory factors behind formalizing non-farm household businesses in Vietnam," Working Papers DT/2012/20, DIAL (Développement, Institutions et Mondialisation).
    2. Rafael La Porta & Andrei Shleifer, 2014. "Informality and Development," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 109-126, Summer.
    3. Jean-Pierre Cling & Mireille Razafindrakoto & François Roubaud, 2012. "To be or not to be registered? Explanatory factors behind formalizing non-farm household businesses in Vietnam," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 17(4), pages 632-652.
    4. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1403-1448.
    5. McKenzie, David & Seynabou Sakho, Yaye, 2010. "Does it pay firms to register for taxes? The impact of formality on firm profitability," Journal of Development Economics, Elsevier, vol. 91(1), pages 15-24, January.
    6. Joel M. David & Venky Venkateswaran, 2019. "The Sources of Capital Misallocation," American Economic Review, American Economic Association, vol. 109(7), pages 2531-2567, July.
    7. Brian McCaig & Nina Pavcnik, 2018. "Export Markets and Labor Allocation in a Low-Income Country," American Economic Review, American Economic Association, vol. 108(7), pages 1899-1941, July.
    8. repec:dau:papers:123456789/11191 is not listed on IDEAS
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    Cited by:

    1. Fernando Cárdenas Echeverri & Andres García-Suaza & Juan Esteban Garzon Restrepo, 2023. "Revisiting the relationship between firm strategic capabilities and productivity in a multilevel analysis: Do labor market conditions matter?," Documentos de Trabajo 20641, Universidad del Rosario.

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    More about this item

    Keywords

    Formalization; Productivity; Firm productivity; Viet Nam; Misallocation;
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