Is Informality Good for Business? The Impacts of IDP Inflows on Formal Firms

58 Pages Posted: 15 Nov 2019

See all articles by Sandra Rozo

Sandra Rozo

University of Southern California - Marshall School of Business; University of Southern California - Schaeffer Center for Health Policy and Economics

Hernan Winkler

World Bank

Date Written: October 7, 2019

Abstract

This paper examines the effects of large inflows of internally displaced persons (IDP), who are primarily absorbed by the informal sector, on the behavior of formal manufacturing firms in Colombia. To identify causal effects, the analysis employs annual, firm-level panel data between 1995 and 2010 and exploits that when conflict intensifies, forcefully displaced individuals tend to migrate to municipalities where people from their origin locations settled earlier. The paper finds that large inflows of IDP induce sizable, negative effects on the intensive and extensive margins of production of formal firms. These effects are stronger for firms operating in sectors that face a stronger competition from the informal economy.

Keywords: Labor Markets, Crime and Society, Social Cohesion, Educational Sciences, Plastics & Rubber Industry, Business Cycles and Stabilization Policies, Textiles, Apparel & Leather Industry, Pulp & Paper Industry, Food & Beverage Industry, Common Carriers Industry, Construction Industry, General Manufacturing

Suggested Citation

Rozo, Sandra and Winkler, Hernan Jorge, Is Informality Good for Business? The Impacts of IDP Inflows on Formal Firms (October 7, 2019). World Bank Policy Research Working Paper No. 9035, Available at SSRN: https://ssrn.com/abstract=3485918

Sandra Rozo (Contact Author)

University of Southern California - Marshall School of Business ( email )

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University of Southern California - Schaeffer Center for Health Policy and Economics ( email )

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Hernan Jorge Winkler

World Bank ( email )

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