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Who is Afraid of Informal Competition? The Role of Finance for Firms in Developing and Emerging Economies

  • Julia Friesen
  • Konstantin M. WackerEmail author
Early Careers Article

Abstract

This paper investigates which firms experience the most intense informal competition and highlights the role of access to finance in this context. We use data from the World Bank Enterprise Surveys covering 42,000 firms in 114 countries and take discrete responses on the perceived severity of business obstacles such as informal competition and financial constraints as key variables in our empirical analysis. We find that financially constrained firms face significantly more intense competition by the informal sector and that this effect is economically large. Other influential variables are highly overregulated labor markets, corruption, and firm size. A wide range of robustness checks substantiate these findings.

Keywords

Firm finance Informal competition Enterprise survey data Ordered logit model 

Résumé

Cet article examine quelles entreprises sont confrontés le plus à la concurrence du secteur informelle et souligne le rôle de l'accès au financement dans ce contexte. Pour notre analyse empirique, nous employons les enquêtes des entreprises de la Banque Mondiale pour 42,000 entreprises dans 114 pays et utilisons des réponses discrètes sur la gravité perçue des obstacles commerciales tels que la concurrence informelle et les contraintes financières. Nous constatons que les entreprises avec des contraintes financières sont confrontés le plus fort à la concurrence informelle et que cet effet est économiquement important. Les autres variables influentes sont une régulation très stricte des marchés du travail, la corruption et la taille des entreprises. Nombreux contrôles de robustesse corroborent ces résultats.

JEL Classifications

C25 D21 O17 

Notes

Acknowledgements

We would like to thank Klaus Friesenbichler, Stephan Klasen, Ross Levine, two anonymous referees, and participants at seminars in Göttingen and Vienna for helpful comments. All remaining errors are ours.

Disclaimer

The views expressed in this paper are those of the authors and do not necessarily represent those of any of their affiliations.

Compliance with Ethical Standards

Conflict of Interest

On behalf of all authors, the corresponding author states that there are no conflicts of interest.

Supplementary material

41287_2019_204_MOESM1_ESM.docx (172 kb)
Supplementary material 1 (DOCX 172 kb)

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Copyright information

© European Association of Development Research and Training Institutes (EADI) 2019

Authors and Affiliations

  1. 1.KfW - Kreditanstalt für WiederaufbauFrankfurt am MainGermany
  2. 2.University of GroningenGroningenThe Netherlands

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