Gender dimensions of business formalisation: evidence from Vietnam

The informal sector is widely acknowledged to play an important part in developing economies, through its role in income and job creation. However, the sector faces significant challenges, ranging from governments’ lost tax revenue to limited economic resources available for informal firms’ growth, as well as poor working conditions and lack of social protection for informal workers. As such, reducing the size of the informal sector has been high on international development policy agendas, with the formalisation of small informal enterprises through registration and taxation proposed as key steps forward. Although a substantial body of work has analysed the impact, drivers, and barriers of formalisation in the context of low-income countries, very few studies have explicitly examined such issues through a gender lens. Persistent gender discrimination in the labour market has undeniably shaped women’s decisions to move towards the informal sector. This thesis fills the knowledge gap created by the paucity of literature using three studies that explore the gender dimensions of formalisation of micro and small enterprises in Vietnam’s context. The first study examines whether the impact of formalisation on micro and small firms’ performance is gendered, and whether men-owned firms derive more benefits from formalisation than women-owned firms. The findings indicate that formalisation is associated with a wider gender gap in firm profitability, led by an increase in men-owned formal firms. There is no evidence that formalisation increases profit among women-owned firms. The second study investigates if gender discrimination exists in financial access among informal firms, and whether formalisation plays a role in increasing demand and access to formal credit of women-owned firms. Overall, the findings are mixed. I find no difference in formal credit demand between men- and women-owned firms in the informal sector, but observe a gender gap in financial access, as measured by 1) the ratio of approval for total loan applications and 2) the size of formal loans. Further, there is no evidence that formalisation increases credit demand among women-owned firms or improves their chances of obtaining a formal loan. However, women-owned firms secure larger-sized loans, resulting in a narrower gender gap in financial access. The third study examines the effect of the local economic governance on firms’ decisions to formalise, using a gender perspective. I find that the quality of local economic governance, which is measured by the provincial competitiveness index (PCI), has a positive influence on the decision to formalise, but there is no evidence of a gender differential effect in PCI. Further insights are obtained, both on the effects of local governance and its gender dimensions, when I separately examine the nine sub-indices of the PCI. For instance, while formalisation decisions by women-owned firms are found to be more greatly affected by the quality of provincial business support services and legal institutions, decisions by men-owned firms tend to be associated with other aspects of local governance, such as time costs and labour policies. The thesis uses a panel dataset of Vietnam Small and Medium Enterprise (SME) survey, conducted by a collaborative effort of the Central Institute for Economic Management (CIEM), the Institute of Labour Science and Social Affairs (ILSSA), the Development Economics Research Group (DERG) at the University of Copenhagen, and the United Nations University World Institute for Development Economics Research (UNU-WIDER), every two years from 2005 to 2015. In the third study, the Vietnam SME survey’s dataset is merged with another panel data extracted from the Vietnam PCI survey.