Abstract

CUETO, Mónica  and  GOMEZ, Erick. Firm migration to informality and trade openness in developing countries. Revista de coyuntura y perspectivas [online]. 2016, vol.1, n.4, pp. 01-31. ISSN 2415-0622.

Our main question is why a formal firm becomes informal. We hypothesize that sales behavior and trade openness and are related to this behavior. We present empirical evidence to argue that firm informalization is a strategy conducted to face a downturn in sales. However, the country level of trade openness as a proxy for the average level of managerial abilities of firms reduces the impact of a drop in sales on firm informalization. For this purpose, we draw upon data from 636 firms in 12 developing countries from World Bank surveys and apply a simultaneous equation framework with a dichotomous dependent variable.

Keywords : Informality; Developing economies; Trade openness.