The majority of firms in most developing countries are informal. In Sri Lanka only one-fifth of firms operating without paid workers are registered with any government agency. Even among firms employing paid workers, the majority are unregistered with one or more pertinent agencies.
Researchers from the World Bank, Sri Lanka's University of Peradeniya and United Kingdom's University of Warwick designed a field experiment to measure the latent demand for formalization, and the consequences that formalizing has on informal firms. The experiment provided informal firms incentives to formalize. A sample of informal firms with one to 14 paid employees in two largest Sri Lanka cities were divided into four treatment groups and a control group. The first treatment group was given information about the costs and benefits of, and procedures for, registering their firm for tax purposes, and offered reimbursement for the cost of registering, about 1000 Sri Lankan Rupees (LKR). The second, third, and fourth treatment groups were provided the same information and also offered a payment of 10,000 LKR, 20,000 LKR and 40,000 LKR (approximately US$88, $175 and $350 respectively) to register.
Baseline survey was conducted in December 2008 with the sample of 520 businesses. Three follow-up surveys of these same firms were carried out in August 2010, March 2011 and December 2011 to examine whether and how the firms benefited from formalization.
Kind of data
Sample survey data [ssd]
v01: Edited, anonymous datasets for public distribution.
Two largest cities in Sri Lanka - Colombo and Kandy
Unit of analysis
Businesses with one to 14 employees not registered with the Divisional Secretariat (DS) at the time of the baseline survey.
Producers and sponsors
Suresh de Mel
University of Peradeniya, Sri Lanka
University of Warwick, United Kingdom
Knowledge for Change Program Trust Fund
Department for International Development
Ewing Marion Kauffman Foundation
Researchers randomly selected five Divisional Secretariat Divisions (DS) in each Colombo and Kandy. In December 2008, research assistants went door-to-door in these areas to screen firms, with the goal of surveying approximately 50 unregistered firms in each selected DS. Firms were selected for the baseline survey if they were not registered with the DS, were not in seasonal agriculture or fisheries, had 1 to 14 paid employees, and had an owner aged 20 to 55 who worked at least 20 hours in the enterprise each week. A sixth DS Division was added in Kandy due to difficulty finding enough informal firms which satisfied these criteria. The resulting baseline sample consisted of 520 firms, evenly split between Colombo and Kandy.
The sample size of 520 was randomly assigned by computer into four treatment groups and a control group as follows. Firms were first stratified by province (Colombo or Kandy), industry (retail, manufacturing, or services), whether or not they had more than two paid employees, and whether or not in the baseline survey they had said they would register if someone were to pay the costs, and had also said they perceived some benefit to registration. Then within each of these 24 strata researchers sorted firms according to their sales rank, and formed matched quintuplets. Where the number of firms in a strata was not perfectly divisible by five, the additional firms were randomly assigned within strata to one of the five treatment groups with equal probability. There were 102-105 firms in each treatment group. The stratification variables were chosen on the basis that local regulations make the process of registration slightly different in Colombo and Kandy, while the incentives to register were a priori believed to possibly differ by industry, firm size, and self-professed desire to register.
Dates of collection
Mode of data collection
Four survey questionnaires were administered during the impact evaluation study.
Note that the December 2011 fourth round survey was originally schedule for September 2011, and so some dates in the English version of the questionnaire still refer to September 2011. The dates were changed to correspond to a December 2011 timeline in the Sinhala version.
Kandy Consulting Group
Use of the dataset must be acknowledged using a citation which would include:
- the Identification of the Primary Investigator
- the title of the survey (including country, acronym and year of implementation)
- the survey reference number
- the source and date of download.
David McKenzie, World Bank; Suresh de Mel, University of Peradeniya; Christopher Woodruff, University of Warwick. Sri Lanka Formalization Experiment Data (SLFED) 2008-2011, Ref. LKA_2008_SLFED_v01_M. Dataset downloaded from [URL] on [date].
Disclaimer and copyrights
The user of the data acknowledges that the original collector of the data, the authorized distributor of the data, and the relevant funding agency bear no responsibility for use of the data or for interpretations or inferences based upon such uses.