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Economic Growth and Poverty: Does Formalisation of Informal Enterprises Matter?

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  • Esther K. Ishengoma

    ()
    (Faculty of Commerce and Management, University of Dar es Salaam and GIGA German Institute of Global and Area Studies)

  • Robert Kappel

    ()
    (GIGA German Institute of Global and Area Studies)

Abstract

The informal sector (IS) plays a significant role in developing countries viz. the provision of employment, income and supplying ignored markets. However, working and employment conditions within the sector are still poor. Its expansion and changing structures have thus drawn the attention of scholars and international policy makers to the factors hindering its formalisation. Among the factors addressed are the high costs of formalisation and the lack of incentives for operating in the formal sector. A variety of approaches have been adopted by different stakeholders to overcome these factors. This paper assesses these approaches along with the factors related to informality-formality trade-off and the issue of formalisation as a solution for firms’ growth. By focussing on the problems faced by informal enterprises and the literature which addresses the options for accelerating the formalisation of informal enterprises, the paper will briefly summarise the weaknesses of these approaches.

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Bibliographic Info

Paper provided by GIGA German Institute of Global and Area Studies in its series GIGA Working Paper Series with number 20.

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Length: 39 pages
Date of creation: Apr 2006
Date of revision:
Handle: RePEc:gig:wpaper:20

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Keywords: Informal sector; small enterprises; formal and informal institution; cost of formalisation; informality; formality; poverty; economic growth;

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  1. Robert C. Feenstra, 1998. "Integration of Trade and Disintegration of Production in the Global Economy," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 12(4), pages 31-50, Fall.
  2. Howell, Jude & Singh, Andrea, 2002. "Good practice study in Shanghai on employment services for the informal economy," ILO Working Papers, International Labour Organization 355191, International Labour Organization.
  3. Klein, Michael, 2003. "Ways out of poverty : diffusing best practices and creating capabilities - perspectives on policies for poverty reduction," Policy Research Working Paper Series, The World Bank 2990, The World Bank.
  4. Jackle, Annette E & Li, Carmen A, 2006. "Firm Dynamics and Institutional Participation: A Case Study on Informality of Micro Enterprises in Peru," Economic Development and Cultural Change, University of Chicago Press, University of Chicago Press, vol. 54(3), pages 557-78, April.
  5. Xaba, Jantjie & Horn, Pat & Motala, Shirin & Singh, Andrea, 2002. "Informal sector in Sub-Saharan Africa," ILO Working Papers, International Labour Organization 355190, International Labour Organization.
  6. Ranis, Gustav & Stewart, Frances, 1999. "V-Goods and the Role of the Urban Informal Sector in Development," Economic Development and Cultural Change, University of Chicago Press, University of Chicago Press, vol. 47(2), pages 259-88, January.
  7. Abigail Barr, 1998. "Enterprise performance and the functional diversity of social capital," Economics Series Working Papers, University of Oxford, Department of Economics WPS/1998-01, University of Oxford, Department of Economics.
  8. Christian Morrisson, 1995. "What Institutional Framework for the Informal Sector?," OECD Development Centre Policy Briefs, OECD Publishing 10, OECD Publishing.
  9. Loayza, Norman A., 1997. "The economics of the informal sector : a simple model and some empirical evidence from Latin America," Policy Research Working Paper Series, The World Bank 1727, The World Bank.
  10. Reinikka, Ritva & Svensson, Jakob, 2002. "Coping with poor public capital," Journal of Development Economics, Elsevier, Elsevier, vol. 69(1), pages 51-69, October.
  11. International Monetary Fund, 2004. "Serbia and Montenegro," IMF Staff Country Reports, International Monetary Fund 04/120, International Monetary Fund.
  12. Levenson, Alec R. & Maloney, William F., 1998. "The informal sector, firm dynamics, and institutional participation," Policy Research Working Paper Series, The World Bank 1988, The World Bank.
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Cited by:
  1. Tarek, Syed Ali, 2011. "Study of Sustainable Growth Factors of SIE/ Micro-financed Business," MPRA Paper 40752, University Library of Munich, Germany.
  2. Kanothi, R.N., 2009. "The dynamics of entrepreneurship in ICT: case of mobile phones downstream services in Kenya," ISS Working Papers - General Series, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague 18727, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
  3. Benjamin, Nancy & Beegle, Kathleen & Recanatini, Francesca & Santini, Massimiliano, 2014. "Informal economy and the World Bank," Policy Research Working Paper Series, The World Bank 6888, The World Bank.
  4. Fara Azmat & Ramanie Samaratunge, 2009. "Responsible Entrepreneurship in Developing Countries: Understanding the Realities and Complexities," Journal of Business Ethics, Springer, Springer, vol. 90(3), pages 437-452, December.

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