Intensity of Informal Competition among Firms in Ethiopia

doi:10.7176/rjfa/12-19-01

Abstract

The study investigated intensity of informal competition among firms in Ethiopia and predicted the level and nature of this competition. The study found that prevalence of highest corruption, tax rates, financial constrained are found to be positively and significantly affecting competition against informal firms in Ethiopia. On the contrary, firm size found to be negatively and significantly affecting competition against informal firms. Similarly, the study revealed that tax regulation and inspection enforcement conducted by tax officials could not save firms from informality. Even if most research indicated that increase in government enforcement on tax code lead to reduce informality, however in this research it is required further study as to how tax code inspections and regulation could not bring negative result on informal competition Keywords: intensity of informal competition, binary probit and econometric model DOI: 10.7176/RJFA/12-19-01 Publication date: October 31 st 2021

Highlights

Competition is an engine of economic growth in most markets since it induces higher rates of productivity growth; competition between formal and informal firms is not necessarily lead to productive
The study hypothesized that firm size is negatively and significantly related with prevalence of completion against informal firms
The study found that firm size is negatively related with the occurrence of informal competition

Summary

Introduction

Competition is an engine of economic growth in most markets since it induces higher rates of productivity growth; competition between formal and informal firms is not necessarily lead to productive. Informal competition is harmful to overall economic performance since the cost advantage informal firms enjoy is a result of ignoring many or all business regulations. Some of these disadvantages stem from inaccessibility to formal credit markets and to the courts. Informal producers may affect formal firms’ innovation decisions are via competition in the product market. By their very nature, informal firms face lower entry costs than formal firms, since they are less affected by regulatory burdens imposed on formal firms (McKenzie,Seynabou Sakho, 2010)

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