Informality and firm performance in Myanmar
Using a unique panel survey of enterprises, we examine the relationship between four categories of formalization and firm productivity. We carry out one- and two-step productivity estimations whose robustness we check with matching and doubly robust estimators.
The only formalization category that appears to be significantly associated with productivity is tax formalization, i.e. a firm’s decision to pay taxes. This positive association only holds for firms that were already more productive and bigger before formalizing than other informal firms.
The reason for the insignificance of the remaining three categories is likely to be the insignificant association between formalization and potential benefits of formalization, such as more access to credit, employees, and investments. High taxes and fees linked to formalization seem to outweigh the few to non-existent intermediate benefits of formalization.