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Out of the Gray: The Impact of Provincial Institutions on Business Formalization in Vietnam

Published online by Cambridge University Press:  24 March 2016

Edmund Malesky  and
Markus Taussig
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Abstract

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Scholars have long argued that institutional context significantly influences business strategy and economic performance. Research on the relationship between institutions and business strategy, however, has overwhelmingly focused on the decisions of larger, established corporations, mostly neglecting the strategic thinking of smaller, more entrepreneurial ventures. This article seeks to correct this bias by focusing the analysis directly on the critical decision of small-scale entrepreneurs to move from the informal and largely unregulated sector into operation as formal companies. Using a unique dataset and ranking of provincial governance institutions from Vietnam, the authors show that improvements in institutions make firms more likely to choose the formal sector from the start and, for those who do not, to spend less time in the informal sector. The study also finds that property rights have a more salient impact on formalization than other types of institutions.

Keywords

formalizationproperty rightsVietnamland titlegovernanceinstitutionsprovincial competitiveness indexPCIinstitutionseconomic growth
Type
Articles
Information
Journal of East Asian Studies , Volume 9 , Issue 2 , August 2009 , pp. 249 - 290
Copyright
Copyright © East Asia Institute 

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