Informality, Size, and Regulation: Theory and an Application to Egypt
Informality, Size, and Regulation: Theory and an Application to Egypt
Date
1997-12-01
Authors
Giugale, Marcelo
El-Diwany, Sherif
El-Diwany, Sherif
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Altmetrics
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Research Projects
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Center for Agricultural and Rural Development
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Center for Agricultural and Rural Development
Abstract
The paper shows how, when the enforceability of regulations is size-sensitive, price competition can lock firms into informality and, thus, smallness, depending on the form of the production function. In that context, exogenous "help" packages targeted to informal firms "promote" micro and small enterprises (i.e., increase their numbers) but do not "develop" them (i.e., foster their growth). The "help" only generates a short-term span of abnormal profits for existing informal firms, and a long-term income transfer toward informal-market consumers. The model is tested in the context of Egypt's micro and small enterprise sector.