Firm Dynamics and Institutional Participation: A Case Study on Informality of Micro-Enterprises in Peru

Using panel data on micro-enterprises from Peru, we find evidence suggesting that firm dynamics explain 'formality', i.e. the decision to participate in societal institutions. In particular, we find that participation increases with firm size and age, implying transition of firms to formality as they grow. The distinct characteristics of sub-groups, segmented according to life-cycle criteria, further support the role of firm dynamics and life-cycle considerations for the analysis of participation.