The Benefits of Formalization: Evidence from Vietnamese Manufacturing SMEs

Research output: Contribution to journalJournal articlepeer-review


Based on unique panel data consisting of both formal and informal firms, this paper uses a matched double difference
approach to examine the relationship between legal status and firm level outcomes in micro, small and medium manufacturing enterprises
(SMEs) in Vietnam. Controlling for determining factors and observable time-variant factors that may simultaneously influence
the decision to formalize and subsequent firm performance, we find evidence that becoming officially registered leads to an increase
in profits and investments, and a decrease in the use of casual labor (improved contract conditions for workers). Thus, we conclude that
formalizing is beneficial both to firms and the workers in these firms.
Original languageEnglish
JournalWorld Development
Issue number5
Pages (from-to)983–998
Number of pages16
Publication statusPublished - May 2012
Externally publishedYes

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