Research Summary
Research Summary
Institutions and Firm Strategy at the Bottom of the Pyramid: The Case of Business Formalization in Vietnam
Description
In this paper, written together with Edmund Malesky (UCSD), we test a series of hypotheses about how institutions shape a strategic decision of significant importance to the evolution of inclusive markets: registration as companies by previously informal businesses at the bottom of the pyramid. We concentrate on the role of three specific types of institutions: contract enforcement, property rights, and entry regulation. Our results indicate that better property protection and lower entry regulations do reduce time spent in the informal economy, although the positive effect of property rights is limited to the period before reform of entry regulations. We find no evidence that contract enforcement influences the formalization process.