V. Policies that seek to increase the number of firm registrations with business entry reforms

A number of studies from Latin America have examined the impact of reducing the costs of registering. For example, governments have implemented a “one-stop shop service point”, which eliminated the need to visit several different government offices to complete the formalisation process. The overall finding from these studies is that a large reduction in the cost and time taken to register a firm has only led to a modest increase in the number of formal firms.

For example, a reform in Mexico reduced the number of days needed to start a business from 30.1 to 1.4. Bruhn (2011) uses data on individuals’ employment status from the Mexican Labor Market Survey to show that this reform increased the number of registered businesses owners by 5 percent. Kaplan, Piedra and Seira (2011) use administrative data to analyse the same reform and find that it increased the number of new firm registrations with the Mexican Social Security institute by 5 percent but also find evidence that this was a one-off gain in registrations. Cárdenas and Rozo (2007) investigate a reform by the Colombian government that reduced the time required to register a business from 55 to less than 9 days and lowered the registration fees by 30 percent, and find that it led to a 5 percent increase in business registrations.

Entry reforms appear to have an even smaller effect on business registrations in less populous and more remote areas. Bruhn and McKenzie (2013) analyse the impact of a reform in Brazil that aimed to extend the benefits of a one-stop shop to smaller municipalities, and find that it actually led to a reduction in the number of firms registering during the first two months of implementation (perhaps due to officials learning to use the new system), with no subsequent increase.

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