Microfinance and the Informal Sector: Evidence from Household Enterprises in Malawi
Date
2013
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Haverford College. Department of Economics
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Thesis
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eng
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Haverford users only
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Abstract
This thesis examines the effect of access to microfinance on Malawian microenterprises’ decision of whether to operate in the informal or formal sector of the country’s economy. The determinants of formality of microenterprises have been studied extensively, but as of yet, no research has specifically attempted to measure the effect of access to microfinance. My paper will fill this gap in the development literature. My analysis expands a theoretical model introduced by Dabla‐Norris et al. in their 2008 article on the determinants of formality. Using their theoretical framework, I develop a more complex model of a firm’s formalization decision. Using two different econometric models, I confirm the main implications of the theoretical model and find that access to microfinance increases the incidence of informality in developing economies.