Determinants of Micro Firm Informality in Mexican States 2008-2012

Abstract

Informality has been given adverse associations as a result of its economic and social consequences in developed and developing countries. The latter group of countries has been the most affected in terms of low productivity, unprotected workers and the erosion of institutional credibility. Although the determinants of informality have been studied before, the research conducted on micro firms in a developing country has been less notable. In this paper, Mexico is taken as case study due to its high level of micro firm informality and the heterogeneity among Mexican states. The aim of this paper is to analyse the determinants of micro firm informality by state, using different public sources, such as the Encuesta Nacional de Micronegocios (ENAMIN, or the National Micro Firm Survey), the Instituto Nacional de Estadisica (INEGI, or the National Institute for Statistics) and the Secretaría de Economía (SE, or the Secretariat for Economics). Econometric panel data models were estimated for a sample of 32 states over the 2008-2012 period. Furthermore, this paper uses different definitions of informality to check the robustness of the results. The empirical evidence obtained allows us to conclude that, although economic factors are the main causes of informality, variables such as corruption and education have an important role to play.