Explaining cross-country variations in the prevalence of informal sector competitors: lessons from the World Bank Enterprise Survey

To advance understanding of informal sector entrepreneurship, the aim of this paper is to evaluate and explain the cross-country variations in the prevalence of informal sector competitors. To do so, World Bank Enterprise Survey (WBES) data is reported from 142 countries. This reveals that 27% of formal enterprises view competition from the informal sector as a major constraint on their operations, although this varies from 72% of formal enterprises in Chad to no formal enterprises in El Salvador. To explain these cross-country variations, four competing theories are evaluated which variously view informal sector entrepreneurship and enterprise to be more prevalent when there is either: economic under-development (modernisation theory); high taxes and state over-interference (neo-liberal theory); too little state intervention (political economy theory), or an asymmetry between the laws and regulations of formal institutions and the unwritten socially shared rules of informal institutions (institutional theory). A multilevel probit regression analysis confirms the modernisation and institutional theories, but not the neo-liberal and political theories. Beyond economic under-development, therefore, it is not too much or too little state intervention that is associated with the prevalence of informal sector competition but rather, whether the laws and regulations developed by governments are in symmetry with the norms, values and beliefs of entrepreneurs. The paper concludes by discussing the theoretical and policy implications of these findings.

     

Household survey evidence on domestic workers in Ethiopia

ABSTRACT

Whilst much scholarly attention of this nascent field of domestic service work focuses on protecting the rights and security of foreign/migrant domestic workers, the nature of domestic service work undertaken within national borders has escaped the attention of both researchers and public policy makers. Outlining the findings from a large household survey data in Ethiopia collected from seven major urban areas covering the period from 1994 to 2004, this paper departs from the usual focus on rights-based perspective and foreign migrant domestic service workers. Instead, the paper attempts to contribute to our understanding of the profile of domestic service providers, the significant drivers of participation in the provision of domestic services and the welfare of unpaid and paid domestic service workers in Ethiopia. In doing so, the paper contributes to the development of a greater evidence base, relevant for both researchers and public policy practitioners alike.     

Starting-up unregistered and firm performance in Turkey

Recent years have seen a questioning of the negative representation of informal sector entrepreneurship and an emergent view that it may offer significant benefits. This paper advances this rethinking by evaluating the relationship between business registration and future firm performance. Until now, the assumption has been that starting-up unregistered is linked to weaker firm performance. Using World Bank Enterprise Survey data on 2494 formal enterprises in Turkey, and controlling for other determinants of firm performance as well as the endogeneity of the registration decision, the finding is that formal enterprises that started-up unregistered and spent longer unregistered have significantly higher subsequent annual sales and productivity growth rates compared with those registered from the outset. This is argued to be because in such weak institutional environments, the advantages of registering from the outset are outweighed by the benefits of deferring business registration and the low risks of detection and punishment. The resultant implication is that there is a need to shift away from the conventional eradication approach based on the negative depiction of informal entrepreneurship as poorly performing, and towards a more facilitating approach that improves the benefits of business registration and tackles the systemic formal institutional deficiencies that lead entrepreneurs to decide to delay the registration of their ventures.     

Aid,Policies, and Growth in Developing Countries: A New Look at the Empirics

The relationship between foreign aid and economic growth has been the subject of much controversy. A recent theme suggesting that aid promotes growth, but only in a good policy environment has ratcheted up that debate. In this paper, we assess the importance of policy and aid in generating growth when the aid, policy, and growth relationship is nonlinear. This allows us to examine the varying effects of aid and policy in different data segments, which we do without imposing any particular structure on the underlying relationship. We find that policy is an important determinant of growth. We also find partial corroboration of the view that aid is growth enhancing in a good policy environment, and some evidence of diminishing returns to aid. These findings suggest that nonlinearities if not appropriately addressed fail to capture the detailed underlying dynamics and thereby mask some key features of the aid-policy-growth relationship.     

Health and Productivity: Panel Data Evidence from Ethiopia

Abstract: Neoclassical growth models and endogenous growth theories show the positive contribution of human capital to growth. Using household panel data (1994–2000) on individuals who reported their wages in urban Ethiopia, we estimated a relationship between health measures (i.e. proxied by height and BMI) and wages (which proxies productivity/growth). Our findings from the IV quantile regression estimates indicate that productivity is positively and significantly affected by education, height and BMI. The return to BMI is important both at the lower and upper end of the wage distribution. The return to height is significant only at the end of the wage distribution. The substantive content of the results (i.e. the high‐nutrition and high‐productivity equilibrium story) does not change even if we did not control for endogeneity of schooling. Non‐parametric evidence also supports the strong and positive relationship between productivity and our indicators of human capital.     

Quadratic Engel Curves with Measurement Error: Evidence from a Budget Survey*

This paper examines the importance of accounting for measurement error in total expenditure in the estimation of Engel curves, based on the 1994 Ethiopian Urban Household Survey. Using Lewbel's [Review of Economics and Statistics (1996 ), Vol. 78, pp. 718–725] estimator for demand models with correlated measurement errors in the dependent and independent variables, we find robust evidence of a quadratic relationship between food share and total expenditure in the capital city, and significant biases in various estimators that do not correct for correlated measurement errors.