The Impact of Business Formalization on the Performance of Newly Formalized Microenterprises in Nigeria

While the formalization program for informal enterprises is a popular policy instrument in many developing countries, its effects on the performance of informal microenterprises are unclear. This study scrutinizes the effects of business formalization on the performance of informal microenterprises in Nigeria over the two-year period, 2018 and 2020. This study uses the difference-in-difference（DID）estimators, and the results indicate that business formalization of microenterprises led to higher annual valued added and annual net profits. Specifically, the newly formalized microenterprises increased their value added by 26％ and net profits by 27％ on average. The findings also show that the channels through which these increases occurred are improved access to electricity, increased microenterprise size, increased property investment, and access to and the use of mobile phones.