The bright side of formalization policies! Meta-analysis of the benefits of policy-induced versus self-induced formalization

ABSTRACT

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.

KEYWORDS:

• Policy-induced formalization
• self-induced formalization
• informal economy
• firm performance
• meta-analysis

JEL CLASSIFICATION:

• C49
• D21
• D78
• O12
• O17

Disclosure statement

No potential conflict of interest was reported by the authors.