Firm Formalization and Sustainable Development

Last registered on March 30, 2023
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Pre-Trial

Trial Information

General Information

Title
Firm Formalization and Sustainable Development
RCT ID
AEARCTR-0010420
Initial registration date
March 23, 2023

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
March 30, 2023, 3:19 PM EDT

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

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Primary Investigator

Name
Marcus Møller Larsen
Affiliation
Copenhagen Business School
Contact Primary Investigator

Other Primary Investigator(s)

Additional Trial Information

Status
In development
Start date
2023-05-01
End date
2026-02-28
Keywords
Behavior, Environment & Energy, Firms & Productivity, Labor
Additional Keywords
JEL code(s)
Secondary IDs
Prior work
This trial does not extend or rely on any prior RCTs.
Abstract
This project seeks to understand whether and how firm formalization leads to sustainable development. A common trait of most developing economies is the vast presence of firms operating in the informal economy as unregistered enterprises. While many official development policies emphasize the sustainability potential of formalizing these enterprises, it is currently unclear whether and how firm formalization is associated with the adoption of sustainable, inclusive, and environmental business practices. Together with a collaborators from Makerere University Kampala and Uganda Small Scale Industry Association, this project will conduct a field experiment in Uganda consisting of randomized controlled trials to understand 1) why business owners choose to remain informal or decide to formalize, and 2) whether firm formalization leads to the adoption of sustainable business practices. This project can contribute with a more profound understanding of the decision-making underlying the transition to formality and its effect on sustainable development.
External Link(s)

Registration Citation

Citation
Larsen, Marcus Møller. 2023. "Firm Formalization and Sustainable Development." AEA RCT Registry. March 30. https://doi.org/10.1257/rct.10420-1.0
Sponsors & Partners

Sponsors

Partner

Name
Uganda Small Scale Industries Association
Type
ngo
URL
https://ussia.or.ug/
Name
Makerere University
Type
government
URL
https://www.mak.ac.ug/
Experimental Details

Interventions

Intervention(s)
The experiment will consist of two interventions related to business owners’ lack of information on formalization and underdeveloped sustainable business skills.

“Intervention A” will be designed as an information treatment where business owners will receive elaborate information on the advantages and costs of formalizing, the specific steps required to become formal, and the requirements of operating formally. Firms selected for this intervention will receive information in person from a trained instructor who can further elaborate on the process to become formal (deMel et al., 2013).

“Intervention b” will be designed as a streamlined four-to-five-day training module focusing on increasing participants’ sustainable business skills (McKenzie & Woodruff, 2014). Based on the principles of the ‘triple bottom line’ (Elkington, 1994; Porter & Kramer, 2011), the participants will receive basic business training from professional instructors in elementary financial, sustainable, and environmental practices. The training module will be designed as a simplified, “rule-of-thumb” training (Drexler et al., 2010) with elements of a personal initiative training approach that emphasizes developing personal initiatives, goal-setting, and becoming future-oriented (Campos et al., 2017).

Intervention Start Date
2023-08-14
Intervention End Date
2023-08-18

Primary Outcomes

Primary Outcomes (end points)
The first outcome variable will be “firm formalization”. We will develop a “formalization index” that captures the extent to which firms range from fully informal (no registration, tax, or social security) to fully formal (registered, pays tax, and social security).

Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
The second outcome variable will be “adoption of sustainable business practices”, and will be operationalized as the extent to which the firms adopt “sustainable practices” (e.g., working contracts; occupational health; gender balance; etc.), “environmental practices” (e.g., environmental compliance; waste disposal; renewable energy usage; etc.), as well as a more conventional measure of “business practices” (e.g., having business plans, doing marketing; financial services access; etc.).

We will also capture typical performance measures (sales, employees, new investments) for additional analyses.
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
We will conduct field experiments consisting of randomized controlled trials (RCT) to understand the direction and nature of the causal relationship between firm formalization and the adoption of sustainable business practices. The experiment will be conducted as a cross-cutting design of three groups: 1) a group receiving no intervention (pure control); 2) a group receiving “Intervention A” only; 3) a group receiving “Interventions A and B” together.
Experimental Design Details
Not available
Randomization Method
Randomization done in office by a computer after obtaining the baseline survey data.
Randomization Unit
Geographical business zones
Was the treatment clustered?
Yes

Experiment Characteristics

Sample size: planned number of clusters
54 zones
Sample size: planned number of observations
1,200 firms across all zones
Sample size (or number of clusters) by treatment arms
400 firms for control, 400 firms for information (treatment A), 400 firms for business training and information (treatment A+B).
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
Supporting Documents and Materials
IRB

Institutional Review Boards (IRBs)

IRB Name
Makerere University - School of Social Sciences - Research Ethichs Committee
IRB Approval Date
2022-09-14
IRB Approval Number
MAKSSREC 06.22.571
Analysis Plan