Texto para Discussão, Instituto de Pesquisa Econômica Aplicada (IPEA) 1353
In most developing countries, small and medium firms in the informal sector have grown steadily over the last decade as a consequence of regulation and increasing international competition. In these places, the great challenge for policymakers and economic-development practitioners today is how to reconcile economic growth with legal standards. On the one hand, government and non-government practitioners claim that small firms` economic growth is important to increase employment and reduce poverty and, therefore, these firms must be given especial relief from the legislation. On the other hand, law enforcers usually face a dilemma of making small and medium firms comply with the law and bear the risk of being accused of hindering the local development, when these firms are not able to face the burden of meeting law standards. Although there is no simple solution to this dilemma, I believe that the solution to this dilemma lies halfway between these two extremes. This paper show how the government succeeded in putting together local economic growth and standards in three industrial clusters famous by firms` non-compliance with labor, tax and environmental legislation.