Are formal firms more productive than informal ones? a study among microenterprises in Morocco

Abstract

Abstract This paper aims to study the behaviour of formality of 390 microenterprises (ME) and its impact, based on data from a survey that was conducted in the city of Casablanca. We explain, on one hand, the choice of the level of formality using an Ordered Probit model. On the other hand, we analyse the effect of registration and other factors on productivity, using the Stochastic Frontier Approach which considers the risk of self-selection. The results from the first model emphasize the effect of the entrepreneur's demographic and socioeconomic characteristics as well as those related to the ME and its environment. The Stochastic Frontier Approach allowed us to verify the existence of a differentiated efficiency bared on the level of formality. It also appears that the education level of the owner, gender and age of the employees, the main reason for business creation and its size, impact productivity. Keywords Formality, informal sector, productivity, efficiency, microenterprises, Stochastic frontier analysis.