Unfair competition and export intensity of Latin American SMEs: The role of regulations

Latin American countries exhibit significant levels of informal economic activity and a low degree of trade openness. Yet, little is known about the effect of these institutional characteristics on the performance of SMEs when venturing abroad to explore international markets. Based on an institutional voids approach, we explore the effects of unfair competition, particularly related to informality, on export intensity of SMEs conditioned by tariffs, trade regulations, and taxes in Latin America. Multilevel modeling is applied to a sample of 5781 Latin American firms. We hypothesize and find that SMEs increase their exports when they compete against informal firms. Higher tariffs and trade regulations reinforce such unfair competition and thus the decision to focus on international markets.