Entry and Exit of Informal Firms and Development

Non-farm informal businesses comprise the majority of firm distribution in developing countries. We document novel stylized facts about entry and exit informal, non-farm firms using nationally representative panel data over 15 years across regions with varying levels local economic development Vietnam. First, we find that exhibit rates around 14–18% annually. Entry are similar highly correlated at a point time, within industries, regions. They both decline time space development. Second, although market selection influences which survive, have little net effect on aggregate (revenue) productivity or hiring workers outside household. This owes to overlapping labor entering exiting low subsequent growth among surviving entrants. Nonetheless, associated large changes individual income. Third, overlap revenue high correlation between related education owners their activities before after operating an business. Informal business less educated average than wage formal sector, but more agricultural workers. The transitions out reflect underlying structure working-age population, gaps also playing role. most common transition into is from self-employment agriculture. likelihood this declines development, highlighting role agriculture structural change.