Formal Registration and Informal Firms in Cambodia

Discussion Papers


by Kiyoyasu Tanaka

February 2021


This paper estimates the impact of formal registration on firm-level performance. I construct a unique panel dataset on both formally registered and unregistered establishments in Cambodia for 2011 and 2014. The sample includes 8,350 informal firms in 2011, of which 216 firms obtained a formal registration in 2014. To mitigate selection bias, I employ a difference-in-differences method combined with propensity-score matching and a propensity-score-weighted regression method. My results show a significantly positive impact of formalization on sales and value added, but little significant effect on labor productivity. Formalization increases non-wage expenditures significantly, consistent with the hypothesis that formalized firms increase their purchases from other formal firms to benefit from Cambodia’s value added tax system.

Keywords: Informal sector, formalization, registration, Cambodia

JEL classification: O12, O17, D22

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