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PR, IFPRI3, Markets, Trade, and Institutions (MTI); Food and Nutrition Policy

Under what circumstances does firm formalization yield net benefits for previously informal firms? We systematically assessed 22 primary studies in a meta-analysis of African, Asian and Latin American firms. The studies are published between 2011 and 2021 and provide 1,372 performance and business practice estimates: 40 percent of the estimates show significantly positive and 54 percent insignificant effects. The FAT-PET analysis suggests a small positive effect of formalization on firm performance. We also employ a multivariate analysis: The overall genuine effect is modest. There is a positive role for information and time for effects to materialize. Notably, more rigorous designs and recent studies tend to identify smaller and more dispersed effects. The modest effects cast doubt about the capacity of formalization policies to improve business performances suggesting that policies might better focus on prioritizing business productivity and managerial capability over formalization. Yet, we need further experimenting and fine-tuning of policy approaches to precisely identify what could make the candle of formalization worth the effort. The current evidence supports theories arguing that the rational cost-benefit argument is an overly simplistic representation of the decision to formalize and that formalization is an uncertain decision affected by multiple and interrelated aspects.

This chapter uses advanced meta-analysis techniques to evaluate the short-run impact of COVID-19 on various labour market indicators. Using 2429 reported estimates of labour market outcomes associated with COVID-19 from 29 empirical studies conducted in 12 countries, we show that large parts of the documented literature exhibit substantial publication bias. After controlling for publication bias, we find almost no practically meaningful impact of COVID-19 on earnings, hours worked and (un)employment. Next, we investigate if the identified publication bias is caused by publication characteristics. However, these characteristics do not appear to drive the identified bias. We also uncover the differences between developed and developing countries. The findings indicate that in practical terms both groups of countries experienced hardly any measurable short-term impacts of COVID-19 on the labour market. Furthermore, we detect systematic upward publication bias for unemployment and job loss in developed countries, and downward bias for employment, hours worked and earnings in developing countries. Overall, we concluded that in the short-run no major labour market effects could be identified related to formal employment.

This paper provides a meta-analysis of the impact of business formalization on performance. We exploit a meta-dataset of 1,271 estimates derived from 20 studies available until October 2019. The analysis reveals that formalization is associated with fairly small benefits that take time to materialize. We then exploited the difference between policy-induced formalization and self-induced formalization investigating underlying effects, publication bias, and sources of heterogeneity. Policy-induced formalization brings large benefits, whereas self-induced formalization only results in medium benefits, suggesting that indeed formalization can be spurred by adequate policy actions. To be most effective, formalization policies should be implemented with information sessions, trainings/workshops, and business development services to unleash the growth potential of newly formalized firms in the most potent way.

Governments and policy-makers promote formalization through various interventions ranging from simplifying registration procedures to increasing enforcement of the law. But despite various efforts, not much is known about the effects of interventions aiming at formalizing informal firms. This meta-analysis examines the empirical literature on the impact of such formalization interventions. We systematically assessed the literature on the impact of formalization policies resulting in 568 observations from 18 studies conducted by 33 researchers and published until June 2018. We analyzed the meta-impact of (i) cost, (ii) benefit and (iii) enforcement policy interventions and assessed whether the resulting outcomes are influenced by the type of data, econometric approach, and specification as well as publication bias. The findings suggest that policies increasing the benefits after formalization are associated with the highest formalization rates. Yet, the overall impact of the studied policy interventions remains weak when we control for publication quality and method heterogeneity. Overall, we only find modest evidence for increased formalization associated with the so far implemented interventions suggesting that it is high time to consider new approaches in addressing the informal economy.

This article outlines a new approach to firm behaviour different from both ‘dichotomist’ and ‘continuum’ formal/informal models. The approach adopts a new heuristic based on the notion of a borderland as space of interaction between dimensions of formality, and creates an umbrella category of trans-formal firms, which are neither purely formal nor informal. Three formality dimensions are adopted: (i) registration of the firm, (ii) existence of a bank account in the name of the firm, and the (iii) presence of an official balance sheet. After elucidating the new approach theoretically, the paper assesses the analytical capacity of the approach with quantitative and qualitative information representing 16 Egyptian and 16 Palestinian firms. The majority of the considered firms are found to be trans-formal moving in a space of decision-making representing our new, broadened notion of borderland showing that policies aiming at formalization processes misrepresent the realities of significant numbers of firms.