Differences in efficiency between Formal and Informal micro-firms in Mexico
Palabras clave:informality, micro firms, efficiency, productivity, decomposition method
The economic role of micro firms is still the subject of much discussion and debate. While these firms can be seen as potential growth driver, a relatively high share of micro firms can also be a sign of an underdeveloped productive system. This research separates formal and informal micro firms to test whether there are efficiency differences between them, and to explain these differences. One of the novelties of the study is the use of the Oaxaca-Blinder decomposition method. Micro firms in Mexico are taken as a case study, with the ENAMIN, for 2008, 2010 and 2012, used to carry out the analysis. The empirical evidence suggests that output differences can be explained by endowment characteristics, while efficiency differences are explained by endowment returns. The main variables to explain the gap between the groups are the owner’s level of education, the firm’s age, the owner’s motivations, and financing.
JEL Classification: D00; D22; D24.
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