Evaluating the Determinants of Informal Competition Faced By Formal Firms in Pakistan: Evidence from World Bank Enterprise Survey 2013

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.