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Citation Information

Type Working Paper - DIAL UMR
Title Explanatory factors behind formalizing non-farm household businesses in Vietnam
Author(s)
Publication (Day/Month/Year) 2012
URL http://en.dial.ird.fr/content/download/59464/460945/version/2/file/DT+2012-20+Cling+-+Razafindrakoto​+-+Roubaud.pdf
Abstract
This article sets out to investigate the reasons why some household businesses decide to register and
become formal (while others do not) in order to shed light on the origins of informality. We use
qualitative as well as quantitative data on household businesses (HB) derived from first-hand
representative surveys implemented in Hanoi and Ho Chi Minh city. The study reveals that although
most of the informal businesses operate ‘illegally’, this is more due to unclear registration legislation
than the mark of a deliberate intention to evade the economic regulations.Among the different factors
which influence the registration decisions, the reason for setting up the business appears to be a
determining one: the more it is a real choice (businesses set up to be independent or to follow a family
tradition) and the less a constraint (set up for lack of an job alternative), the more the HB is more
inclined to be registered. Furthermore, the analysis highlights that incentives do prove decisive insofar
as the probability of having a formal business is greater among HB heads who consider that
registration provides at least partial protection from corruption. Besides, access to information, the
market and large business orders also drive the informal entrepreneurs to register. These results stress
the need for clarification of the legal framework as well as incentive policies in order to address the
issue of informality.

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