How Do Small Formal and Informal Firms in the Arab Republic of Egypt Compare?
Formalizing firms can potentially increase the tax base, expand safety and social protections for workers, create good jobs, and grow the economy. However, the costs and processes of formality may be too challenging for firms, particularly the smal...
| Main Authors: | , , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2020
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/324411601923707684/How-Do-Small-Formal-and-Informal-Firms-in-the-Arab-Republic-of-Egypt-Compare http://hdl.handle.net/10986/34594 |
| Summary: | Formalizing firms can potentially
increase the tax base, expand safety and social protections
for workers, create good jobs, and grow the economy.
However, the costs and processes of formality may be too
challenging for firms, particularly the smallest firms, to
bear. Thus, informal firms may not be able to survive the
transition to formality and attempts to expand formality may
be harmful and counterproductive to job creation and growth.
This paper investigates the potential for currently informal
firms to formalize in the Arab Republic of Egypt. The paper
compares the characteristics and dynamics of micro and small
non-agricultural firms by formality and identifies the
extent of overlap and potential for formalization. The
analysis finds that, beyond firm size, the basic and easily
observable characteristics of firms are not closely linked
to formality. Firm age, productivity, and owner
characteristics such as education are strongly predictive of
formality. There is some overlap in the predicted
probability of formality between formal and informal firms,
suggesting some potential for formalization. The paper
develops profiles (groups and clusters) of similar firms to
identify those with a higher potential for formalization. In
terms of dynamics, new firms tend to be informal and
informal firms are more likely to exit (close), but
conditional on firm survival, employment growth is similar
across formal and informal firms. |
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