DO ENTERPRISES WHOSE COMPETITORS PARTICIPATE IN THE INFORMAL SECTOR SUFFER FROM LOWER LEVELS OF FIRM PERFORMANCE? AN EVIDENCE-BASED EVALUATION FOR THE CASE OF ALBANIA

Abstract

There is a wide belief that firms who operate into the informal economy negatively affect their competitors who operate in the formal economy. This paper aims to provide an evidence-based evaluation of this assumption in the context of Albania. Different official sources confirm Albanian’s informal economy counts for around 40 percent of GDP. Unfair competition remains a huge obstacle of doing business. To evaluate the impact of informal competition into firms that operate fully formal, a survey is conducted using a national representative sample size of 400 firms operating in Albania, comprising all sizes and economic sectors. The linear regression analysis is employed to develop the impact analysis. The results uncovered that firms whose competitors operate into the informal economy, have lower annual sales growth rates compared with those who admit that their competitors do not engage in the informal economy. The survey results have both theoretical and practical implications which are discussed at the end of the paper.