Do Informal Businesses Gain From Registration and How? Panel Data Evidence from Vietnam

•Topic: impact of formalization of household businesses and mechanisms at stake.•We use a unique panel created during a five-year project, and dynamic models.•Formalization increases value added by 20% (the effect is robust to various tests).•…Thanks to changes in operating conditions (equipment, premises, and scale).•Results are valid for the biggest businesses only, not for the more precarious ones. This paper evaluates the impact of Household Businesses’ decision to leave the informal sector on their performance and mode of operation. It capitalizes on a unique panel dataset, result of a five-year project. Using dynamic specifications, we find a significant impact of formalization on annual value added of 20% on average. More importantly, we show that this improvement is not valid for the smallest units, and that it is made possible for the others by changing their operating conditions. Released from the constraints of informality, they can access better equipment, increase their scale of operation, and operate in a more competitive environment.