Abstract:
The current study is an attempt to explore the determinants of informal competition faced by
formal firms in Pakistan using World Bank Enterprise survey 2013. The study investigates the
variables of firm’s characteristics and regulatory measures in order to examine the extent and
intensity of informal competition faced by formal firms. Out of 1125 formal firms used in analysis,
583 firms (46.75%) reported to face informal competition. Among these firms facing informal
competition, 28.99% regarded its severity level as moderate, while 19.21% regarded the severity of
this competition as major obstacle. The result of the study confirms that the characteristics of
formal firms resembling more to the informal firms in terms of size and locality have more
likelihood of facing the informal competition. While in determining the severity of informal
competition, regulatory variables such as taxation, licensing & permits and corruption are found
to be more significant and relevant. These results call on to introduce regulatory reforms making
the regulatory system less burdensome and better enforcement mechanism of those reforms.
There’s a need to create ease for the existing formal firms to fulfill the regulatory requirements as
well as encourage the informal firms to join the mainstream formal setup of economy.
