Formal Institutions and Informal Entrepreneurial Activity: Panel Data Evidence from Latin American Countries

Abstract

Abstract The objective of this work is to examine the influence of formal institutions on the level of informal entrepreneurial activity in Latin American countries. We use a panel dataset for 18 countries during the 2004–2017 periods. This dataset has not been widely used for longitudinal research by academics in the field of entrepreneurship in developing countries. Using the percentage of the adult population identified as self-employed as a proxy for informal entrepreneurial activity, our results suggest that informal entrepreneurial activity is lower in Latin American countries that have stronger property rights and lighter business regulation. However, countries with more flexible labor regulation show higher informal entrepreneurial activity. Therefore, we believe there is margin for policy intervention to reduce informal entrepreneurial activities in Latin America.