Small retailers in Brazil: Are formal firms really more productive?

This paper examines the productivity of formal and informal retailers in Brazil by simultaneously estimating a stochastic production frontier and an efficiency model for a cross-section of some 11,000 retail firms with, at most, five workers. Results show that the efficiency of firms is positively related with ICT adoption, managerial ability, technical assistance and participation in a guild. Formal retailers are more productive than informal retailers, even after controlling for self-selection and firm, industry, and firm-owner characteristics.