Enforcement and the informal sector: evidence from the Philippines
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2019-07
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Abstract
Studies show that the existence of the informal sector may be symptomatic of underlying institutional and structural frailties, which may ultimately hinder long-run growth. Using probit regression analysis on pooled (2,661 firms) and panel (750 firms) datasets from the 2009 and 2015 World Bank Enterprise Surveys for the Philippines, this study finds that institutions determine firm behavior. Firms that perceive manifestations of enforcement mechanism failures as obstacles to firm operations, such as corruption, bribery and inaccessible land are more likely to engage in informal activities. Apart from highlighting the importance of strong institutions, these results also lay the basis for further research on governance efficiency and its effects on firm behavior.
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Informal sector