Institutions and Firm Registration in Africa

Abstract This chapter examines the role firm specific and institutional variables (such as regulation and trust) in firms’ decision to register their economic activities with authorities. Our empirical analysis is based on a large data set gathered from 40 African countries on more than 11,000 small, medium and large firms via the World Bank Enterprise Survey covering the period 2006–2014. This chapter is aimed at reinforcing the limited but a growing body of literature focussing on determinants of informal entrepreneurship using firm-level databases. The analysis of this study shows in institutional environments where there is trust in public institutions such as courts, firms are less likely to stay unregistered. Concerning firm specific variables young firms are found to be more likely to stay unregistered but there is a non-linear relationship between age and length of years spent unregistered. Firms with exporting strategy and in foreign ownership are less likely to stay longer unregistered. There are significant gains if policy-makers focus on building trust in institutions, fighting corruption, embarking on meaningful enforcement of rule of law principles, providing services without reliance on predatory tax policies, reducing firm transaction costs via improved licensing and technology-assisted registration systems.