IMPACT OF SOCIAL CAPITAL ON PERFORMANCE OF INFORMAL SECTOR FIRMS: EMPIRICAL STUDY USING INDIAN FIRM DATA

Abstract

Informal sector enterprises are the businesses that do not registered under the government and therefore not entitled for taxations. Social capital refers to the human networks and relationships people often maintain on their development. Three main types of informal businesses considered in this study are manufacturing, reselling and provision of services. They play a significant role in contributing to the global economy especially in developing countries. The study aimed to examine the impact of social capital on informal businesses. The study further explores the mediating effects of Covid pandemic and female ownership on the informal business performance. Secondary data for the study was obtained from World Bank Enterprise Survey website and the dataset was selected in the Indian context as India is one of the leading countries in South Asia where informal businesses have closer proportion of national economy. Dependent variable, informal business performance was measured in terms of profit and total sales, whereas the independent variable, social capital was measured using a self-developed scale by the author. Multiple regression, instrumental variable regression and censored regression (tobit) models have been used in analysis. The STATA version 11.1 is used as the statistical tool. The regression results show a strong positive relationship among the social capital and informal business performance, while the mediating effect of the global pandemic and female ownership on informal business performance were not significant.