Post-Formalization Registration Non-Renewal (Formalization Churn)
RCTReview
Initial formalization drives successfully persuade informal firms to register, but firms subsequently abandon formal legal status when registration fails to improve sales, profits, or market opportunities.
Picture this
Imagine paying for a gym membership during a promotional campaign, but discovering after six months that health hasn't improved while monthly fees drain the bank account. When the annual renewal date arrives, the member cancels the contract and returns to working out at home.
What the evidence says
Personalized assistance initially increased business formalization, but the effect dissipated completely over time as newly formalized firms chose not to renew registration after experiencing zero gain in sales or profits.
- Who was studied
- Informal micro-enterprises in Bogotá, Colombia.
- How
- Longitudinal Randomized Controlled Trial (RCT) tracking firm registration renewal over time following personalized assistance.
What to do
Bundle initial business formalization with access to government procurement contracts, commercial loans, and enterprise growth support to ensure high registration renewal rates.
From the source
"However, this effect was not maintained over time, mainly because formalized firms decided not to renew their registration, which suggests that firms did not benefit from leaving informality."
JOI_Brazil_Evidence_in_Labor_Market_Policies_and_Implications_for.pdf