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Determinants of Informal Competition Among Firms in Ethiopia

Received: 12 December 2021     Accepted: 27 December 2021     Published: 31 December 2021
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Abstract

The study investigated intensity of informal competition among firms in Ethiopia, using primary data source from the 2015 World Bank Enterprise Surveys for Ethiopia (Ethiopia - Enterprise Survey 2015). The estimated linear probability model (LPM) revealed that the probability prevalence (intensity) of informal competition among firms in Ethiopia is about 38.5%.It indicated that informality is a key problem in Ethiopia. The study also found that prevalence of highest corruption, burden of tax rate and credit access constraint are found to be positively and significantly affecting informal competition of firms in Ethiopia. On the contrary, firm size are found to be negatively and significantly affecting informal competition of firms. Correspondingly, the study revealed that regular inspection and communication of tax officials with firms could not contribute in reducing intensity of informality even if most studies indicated that increase in government enforcement on tax code lead to reduce informality. As many studies indicated that experience of top managers are contributing a lot for reducing informality in an establishment; however, this study exhibited that it does not save firms from informality in Ethiopia. In a nut shell, more research should be conducted as to why tax inspections and experience of top manager could not save firms from informality in Ethiopia.

Published in International Journal of Health Economics and Policy (Volume 6, Issue 4)
DOI 10.11648/j.hep.20210604.13
Page(s) 127-132
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2021. Published by Science Publishing Group

Keywords

Informal Competition, Binary Probit, Firm Size

References
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[6] Friesen, J., & Wacker, K. (2013). Do financially constrained firms suffer from more intense competition by the informal sector? Firm-level evidence from the World Bank enterprise surveys (No. 139). Courant Research Centre: Poverty, Equity and Growth-Discussion Papers.
[7] Godfrey PC. 2011. Toward a theory of the informal economy. Academy of Management Annals 5 (1): 231–277.
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[12] Johnson S, Kaufmann D, McMillan J, Woodruff C. 2000. Why do firms hide? Bribes and unofficial activity after communism. Journal of Public Economics 76 (3): 495–520.
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[14] McCann, B. T., & Bahl, M. (2017). The influence of competition from informal firms on new product development. Strategic Management Journal, 38 (7), 1518-1535.
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[16] McKenzie, D., Seynabou Sakho, Y., 2010. Does it pay firms to register for taxes? The impact of formality on firm profitability. J. Dev. Econ. 91 (1), 15–24.
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[20] Perry, G. E., W. F. Maloney, O. S. Arias, P. Fajnzylber, A. D. Mason, and J. Saadvedra Chanduvi (2007), “Informality: Exit and exclusion”, World Bank Latin America and Caribbean Studies.
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[22] riyama A, Kishore R, Talukdar D. 2016. Playing dirty or building capability? Corruption and HR training as competitive actions to threats from informal and foreign firm rivals. Strategic Management Journal 37 (10): 2152–2173.
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    Abiy Serawitu. (2021). Determinants of Informal Competition Among Firms in Ethiopia. International Journal of Health Economics and Policy, 6(4), 127-132. https://doi.org/10.11648/j.hep.20210604.13

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    Abiy Serawitu. Determinants of Informal Competition Among Firms in Ethiopia. Int. J. Health Econ. Policy 2021, 6(4), 127-132. doi: 10.11648/j.hep.20210604.13

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    AMA Style

    Abiy Serawitu. Determinants of Informal Competition Among Firms in Ethiopia. Int J Health Econ Policy. 2021;6(4):127-132. doi: 10.11648/j.hep.20210604.13

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  • @article{10.11648/j.hep.20210604.13,
      author = {Abiy Serawitu},
      title = {Determinants of Informal Competition Among Firms in Ethiopia},
      journal = {International Journal of Health Economics and Policy},
      volume = {6},
      number = {4},
      pages = {127-132},
      doi = {10.11648/j.hep.20210604.13},
      url = {https://doi.org/10.11648/j.hep.20210604.13},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.hep.20210604.13},
      abstract = {The study investigated intensity of informal competition among firms in Ethiopia, using primary data source from the 2015 World Bank Enterprise Surveys for Ethiopia (Ethiopia - Enterprise Survey 2015). The estimated linear probability model (LPM) revealed that the probability prevalence (intensity) of informal competition among firms in Ethiopia is about 38.5%.It indicated that informality is a key problem in Ethiopia. The study also found that prevalence of highest corruption, burden of tax rate and credit access constraint are found to be positively and significantly affecting informal competition of firms in Ethiopia. On the contrary, firm size are found to be negatively and significantly affecting informal competition of firms. Correspondingly, the study revealed that regular inspection and communication of tax officials with firms could not contribute in reducing intensity of informality even if most studies indicated that increase in government enforcement on tax code lead to reduce informality. As many studies indicated that experience of top managers are contributing a lot for reducing informality in an establishment; however, this study exhibited that it does not save firms from informality in Ethiopia. In a nut shell, more research should be conducted as to why tax inspections and experience of top manager could not save firms from informality in Ethiopia.},
     year = {2021}
    }
    

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  • TY  - JOUR
    T1  - Determinants of Informal Competition Among Firms in Ethiopia
    AU  - Abiy Serawitu
    Y1  - 2021/12/31
    PY  - 2021
    N1  - https://doi.org/10.11648/j.hep.20210604.13
    DO  - 10.11648/j.hep.20210604.13
    T2  - International Journal of Health Economics and Policy
    JF  - International Journal of Health Economics and Policy
    JO  - International Journal of Health Economics and Policy
    SP  - 127
    EP  - 132
    PB  - Science Publishing Group
    SN  - 2578-9309
    UR  - https://doi.org/10.11648/j.hep.20210604.13
    AB  - The study investigated intensity of informal competition among firms in Ethiopia, using primary data source from the 2015 World Bank Enterprise Surveys for Ethiopia (Ethiopia - Enterprise Survey 2015). The estimated linear probability model (LPM) revealed that the probability prevalence (intensity) of informal competition among firms in Ethiopia is about 38.5%.It indicated that informality is a key problem in Ethiopia. The study also found that prevalence of highest corruption, burden of tax rate and credit access constraint are found to be positively and significantly affecting informal competition of firms in Ethiopia. On the contrary, firm size are found to be negatively and significantly affecting informal competition of firms. Correspondingly, the study revealed that regular inspection and communication of tax officials with firms could not contribute in reducing intensity of informality even if most studies indicated that increase in government enforcement on tax code lead to reduce informality. As many studies indicated that experience of top managers are contributing a lot for reducing informality in an establishment; however, this study exhibited that it does not save firms from informality in Ethiopia. In a nut shell, more research should be conducted as to why tax inspections and experience of top manager could not save firms from informality in Ethiopia.
    VL  - 6
    IS  - 4
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Author Information
  • Development Economics, African Leadership Excellence Academy, Addis Ababa, Ethiopia

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