Firm dynamics and institutional participation: A case study on informality of micro enterprises in Peru

摘要

Panel data on micro enterprises from Peru were analyzed to contribute to the understanding of firm dynamics for modeling participation. An attempt was made to examine the firm's decision to participate. Unobserved heterogeneity arising from the omission of variables, such as entrepreneurial ability, drive, and dedication was tested and controlled. Evidence was obtained indicating that firm dynamics explain formality, defined as the decision to participate in societal institutions. Overall, findings lend support to cross-sectional results reported by Levenson and Maloney in 1998 for micro enterprises in Mexico and by Joumard et al. in 1992 and McPherson and Liedholm in 1996 for Niger and Swaziland. The evidence supports predictions that firms with viable cost structures transition from informality for formality as they grow. Furthermore, changes in participation appeared very sensitive to the firm's initial size and growth trajectory. Evidence was also obtained that differences in unobservable factors, such as individual abilities, contribute largely to differences in growth rates and societal participation.