Hanna Berkel defends her PhD thesis at the Department of Economics
Candidate
Hanna Berkel, Department of Economics, University of Copenhagen
Title
Informality and Firms Essays in Development Economics
Supervisors
Professor Finn Tarp
Professor John Rand
Assessment Committee
- Professor Thomas Markussen Department of Economics
- Associate Professor Simon Quinn, University of Oxford
- Senior Lecturer Smriti Sharma Newcastle University
Summary
This PhD dissertation consists of four self-contained chapters in the field of development economics. They examine informal manufacturing firms in Mozambique and Myanmar.
Chapter 1: Informality and Firm Performance in Myanmar – with Finn Tarp
Using a unique panel survey of enterprises, we examine the relationship between four categories of formalization and firm productivity. We carry out one- and twostep 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.
Chapter 2: Firm Formality. Multi-method evidence from Mozambique
This study examines the effects of formality on firms in Mozambique, and explains why these effects do or do not exist. Considering the complex reality in which firms operate, I construct an informality index. My methodology relies on a series of standard econometric estimations of the effects of formality, complemented by innovative qualitative evidence. It emerges that bigger firms are the ones to reap the benefits of formality, while smaller firms face a complex combination of challenges. This implies that they are often unable to benefit from formality. Challenges include
the many additional requirements besides having a formality status in itself.
Chapter 3: Local governance quality and law compliance: The case of Mozambican firms – with Christian Estmann and John Rand
In sub-Saharan Africa, many micro and small enterprises do not (or at least only partially) comply with official rules and regulations. Given that low compliance rates impede economic growth and human development, it is essential to identify mechanisms that can help improve abidance with laws. This paper investigates how the quality of governance (defined as comprising three dimensions: transparency, legal security and infrastructure quality) is related to firm-level compliance with business laws and regulations in the case of Mozambique. We utilise firms’ subjective perceptions of governance quality and their self-reported law compliance over time to study the governance–compliance nexus, taking into account unobserved firm-level heterogeneity. Furthermore, we examine whether political legitimacy acts as a mediator or a moderator between governance and compliance. Our results suggest that perceived improvements in transparency positively affect firms’ compliance with existing legislation. Requests from provincial government officials for firms to comment on local regulations seem to be especially important for law abidance. We find that legitimacy is independently associated with compliance, but does not seem to mediate or moderate the quality of governance. Overall, our results suggest that, even in one of the least developed and non-democratic parts of the world, active participation in political processes is positively associated with law compliance.
Chapter 4: Cash Grants and Firm Recovery after Natural Disasters: RCT Evidence from Mozambique – with Peter Fisker and Finn Tarp
In March 2019, Cyclone Idai hit central Mozambique, causing widespread destruction. We aim to understand whether financial constraints hamper the recovery of micro enterprises in manufacturing after the cyclone. For this purpose, we provide cyclone-affected and unaffected enterprises with unconditional cash grants. We find that our cash grants had very small effects on firm financial outcomes. Our findings build on panel data sampled using a stratified adaptive cluster sampling approach in two urban settings where one (Beira) was more intensely affected by Cyclone Idai
than the other (Chimoio). While the effect of the cash grant was larger among more affected firms, the control group seems to have also recovered well, without special access to credit.
En elektronisk kopi af afhandlingen kan rekvireres her: Pia.Vestergaard@econ.ku.dk