Impact of Business Climate Reforms on the Dynamics of Informality in Burkina Faso

This project examines the impact of business environment reforms in Burkina Faso on the transition to formality for SMEs. 

A business environment with a well-designed regulatory framework is crucial for the development of the private, particularly in low-income countries plagued by weak institutions and low regulatory enforcement. Institutional failures in these countries can typically lead to a large rate of informal employment and entrepreneurship, resulting in lost productivity or potential tax revenue for state. Burkina Faso has been implementing a range of business environment reforms to encourage entrepreneurs to formalize, but still faces a persistent and growing informal sector. This raises the question of the effectiveness of business environment reforms in impacting the dynamics of informality – this project seeks to analyse the relevance of such reforms in Burkina Faso. In particular, the research will analyse the impact of the reforms on the formalization of firms, and will determine the extent and channels of the impact of formality on firm performance.

The study will build on a previous survey of 1200 SMEs, both informal and formal, in five major towns of Burkina Faso. A second round survey will be able to highlight the rate of firms moving into the form sector and the role of business environment reforms in this formalization. The estimated relationships between formality and firm performance, as well as business reforms and formalization, will provide valuable policy insight relevant to the current reforms implemented in Burkina Faso. As there are very few empirical investigations into the effectiveness of business environment reforms in sub-Saharan countries, this research will help fill the gap in evidence available to policymakers.