The Impact of Regulation on Growth and Informality Cross-Country Evidence

Institutions and human development in the Latin American informal economy

“…Galli and Kucera (2003) find robust evidence that countries with stronger ''civic rights'' have higher shares of formal employment and lower shares of informal employment. Finally, Loayza et al (2006) estimate an increase in product-market and labour regulations' indices leads to more informality.…”

“…Johnson et al (1998Johnson et al ( , 1999, Friedman et al (2000), Schneider (2005), Dreher et al (2005), Guha-Khasnobis et al (2006), Dreher and Schneider (2006), Torgler and Schneider (2007), and Bovi and Dell'Anno (2009) find empirical evidence that better institutions are correlated with lower size of the IE. World Bank (1995), Loayza (1996), Galli and Kucera (2003), and Loayza et al (2006) focus their analyses on the impact of regulation on informality. In particular, World Bank (1995) argues that the extent of informal employment in Latin America is partly determined by ''labor policies that overlooked the role of wages and working conditions as incentives and market signals, reducing the number of formal jobs and encouraging the development of the informal sector'' (World Bank 1995, p. 6).…”

Small Firms and Formality: The Influence of Judicial Efficiency and Regulation Costs

“…Given the several institutional conditions that are relevant and the heterogeneity therein across countries, we cannot be certain that the same conclusions would hold for other countries where conditions may vary. To this end, it would be highly desirable to apply the same kind of analysis in other countries and even better to combine micro-level analyses of this type with the macro-level analyses used in Djankov et al (2002) and Loayza et al (2005Loayza et al ( , 2009.…”

“…The literature on regulation costs seems to show that the effects of regulation costs on firm formality may depend on circumstances. On the one hand, de Soto (1989), Djankov et al (2002), and Loayza et al (2005Loayza et al ( , 2009 demonstrate that, when such costs are sufficiently high, firms choose to avoid regulation and hence not register with authorities. But, on the other hand, Banerjee (1997) suggests that in a "grabbing hand" environment, government regulators may realize that bureaucrats charged with enforcement of the regulations may enforce them more vigorously (to extract corruption payments) when the costs of regulation are high.…”

Informal Economies in Post-Socialist Spaces

“…Many researchers of the informal economy have attempted to demonstrate that the process of strengthening, or weakening, formal institutions irrevocably affects the population's support for informal practices. Among the plethora of studies on the correlation between informality and institutional transition Hart, 2006;Loayza et al, 2005;North, 1990), the majority have shown that the decline or weakness of formal institutions leads to the growth of informality (Kim and Koh, 2011;Loayza, 1997). For instance, a study by Chong and Gradstein (2007: 160) has found that, in conjunction with other determinants of the informal sector's strength, 'institutional quality, is a statistically significant and robust determinant of the relative size of the informal sector'.…”