The Effects of the 2008 Global Economic Crisis on Wholesalers and Informal Sector Competition

Abstract

This study delves into the impact of the 2008 Global Crisis on the competition between the wholesalers and unregistered firms in Eastern European and Central Asian countries. The survey data from the European Bank for Reconstruction and Development, and the Business Environment and Enterprise Performance (BEEPSII and BEEPSIV) conducted by the World Bank in 2008 (crisis) and 2013 (post-crisis) were utilized. The survey covers 29 countries in the region. The results of the nonparametric tests show that significantly more wholesalers experienced competition against unregistered firms in 2008 when compared to 2013. While approximately half of the wholesalers experienced informal sector competition in 2008, in 2013, only around one-third of wholesalers experienced informal sector competition. This post-crisis decline is seen for both the five Central Asian economies (Kazakhstan, Kyrgyz Republic, Mongolia, Tajikistan, and Uzbekistan) that are examined and the other transition economies. When wholesalers are classified into different categories based on size, independence from a larger firm, type of firm (partnership, sole proprietorship, etc.), gender of the owner, gender of the top manager, experience of the top manager, and having an internationally recognized quality certification, it is observed that competition against unregistered firms declined in 2013 for all types of wholesalers except for partnerships and larger firms. The results show that, on a scale of 0 to 4 (0 being no informal sector competition and 4 being very severe informal sector competition), the mean severity of competition against unregistered firms was 1.52 in 2008 and 1.18 in 2013. However, this decline in the severity of informal sector competition post-crisis is not seen for the five Central Asian economies that are examined. Also, when different firm types are examined, limited partnerships and firms that are part of a larger firm did not experience a decline in informal sector competition. To find the determinants of competition between the wholesalers and unregistered or informal firms, binary logistic regressions were used. The results show that smaller firms without an internationally recognized certification are more susceptible to informal sector competition in the Central Asian economies, whereas larger, shareholding firms are more prone to informal sector competition in the other transition economies.

Keywords

• global crisis
• financial crisis
• informal firm
• informal sector
• competition
• wholesale