On informality and productivity of micro and small enterprises: evidence from MENA countries

Abstract

The objective of this paper is twofold. First, it aims to examine the impact of informality on productivity in the Middle East and North Africa (MENA) in order to identify existing barriers to formality. Second, it pinpoints factors that boost productivity of micro and small enterprises (MSEs). Using firm-level micro data from the Egyptian and Turkish MSEs surveys, we first find that firm’s age, entrepreneur’s gender, age and education have a significant impact on the probability of belonging to the informal sector. In addition, we find a negative effect of informality on productivity in both Egypt and Turkey. While this result is sensitive to the estimation method for the Egyptian case, it remains robust for the Turkish one. Consequently, there is a clear and significant productivity differential between formal and informal firms in Turkey, but not in Egypt.