Gray Matters in the Growth of Markets

• In Event: 393 - Section on Sociology of Development Roundtables (one-hour)
  In Refereed Roundtable: Table 04. Markets and Institutions

Abstract

We explore the role of organizational origins and legal form for the subsequent growth and performance of firms in 18 sub-Saharan African countries and find that formalization at founding contributed to both higher sales and greater employment among registered firms. At the same time, informality is associated with lower variance in firm performance. The size of the informal sector, perceptions of bureaucratic corruption, and general economic growth moderate these effects. While informality deters firm growth within countries, the relationship between the size of gray markets and larger economic growth across countries appears to be non-negative. We discuss some implications of these findings for organizational growth in developing countries.

Authors

• Valentina Assenova, Yale University

• Olav Sorenson, Yale University