This author investigates the effect of the liability of informality on a firm’s de-internationalisation using cross-country firm-level data. De-internationalisation reflects an export reduction in which firms decrease their overseas sales. Firms that start operating in the informal sector but then switch to the formal sector tend to de-internationalise more than those established as registered businesses. The effect becomes pronounced for small and medium-sized enterprises and firms that do not adopt digital transformation. Our findings indicate that informality imposed a liability on firms, especially during the COVID-19 period, and this is likely to persist over time.
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