From informality to zombification: formalization duration as the missing link in Sub-Saharan Africa

Abstract This paper examines whether the duration of informality before legal registration increases the risk of post-formalization zombification among firms in Sub-Saharan Africa. While the zombie-firm literature has largely explained persistent firm stagnation through financial forbearance and credit misallocation, this paper develops an alternative explanation based on informality, organizational imprinting, and delayed capability accumulation. Using firm-level data from the World Bank Enterprise Surveys covering 44 Sub-Saharan African countries over the period 2009–2024, we construct an ordered zombification score capturing persistent stagnation in growth, productivity, innovation, and investment behavior. The empirical analysis relies on a recursive Conditional Mixed Process framework that accounts for the endogeneity of informality duration and selection into informal entry. The results show that longer informal spells before registration shift firms away from lower zombification categories and toward more severe post-formalization stagnation. This pattern appears in both manufacturing and services and is robust to alternative binary measures, inverse propensity weighting, and fractional response models with control-function correction. Further heterogeneity analyses show that the relationship holds across country-income groups and is especially evident among low- to medium–low-technology manufacturing industries. The findings suggest that formalization alone may not erase the organizational legacy of prolonged informality.