'Shedding light on the shadows of informality: A meta-analysis of formalization interventions targeted at informal firms', by Andrea Floridi, Binyam Afewerk Demena and Natascha Wagner

ISS Working Paper No. 642


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.

Keywords: meta-regression analysis, informal enterprises, formalization, developing countries.

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Andrea Floridi is a PhD researcher at ISS, the International Institute of Social Studies of Erasmus University Rotterdam (EUR). His research focuses on theoretical and empirical features characterizing the informal economy including informal entrepreneurship, institutions and economic behavior. His research interests include development economics, informal economy, private sector development, and value chain analysis. Andrea has experience in the evaluation of international cooperation initiatives and projects for international organizations. As part of his PhD research he has carried out two meta-analyses.

Binyam Afewerk Demena is a Postdoctoral researcher at ISS. He obtained his PhD and MA in Development Economics from the ISS, EUR. His research interests relate to primary empirical research and meta-analysis in development economics, international economics, fishery economics, health economics and other related issues. He has published articles in Applied Economics, Journal of Economic Surveys, and Journal of International Trade and Economic Development among others.

Natascha Wagner is Associate Professor of Development Economics at ISS. Her research interests lie in international economics, development, education and health. She has participated in various impact evaluation projects in Africa and Asia ranging from good governance to public health and rural infrastructure programs and applying experimental as well as quasi-experimental impact evaluation techniques. Currently, she is the lead principal investigator of a large scale randomized controlled trial on the impact of information and communication technology in promoting retention and adherence to antiretroviral treatment in Burkina Faso. In her research, she applies quantitative microeconomic methods to interdisciplinary questions such as gender and ethnicity bias in student evaluations of teaching, norms and policing, inclusiveness in community driven development and peer mentoring for health service uptake. She has published articles in, among others, Health Economics, Economics of Education Review, Journal of Development Studies and World Development.