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

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Author Info
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)

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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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Publisher 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
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Handle: RePEc:gig:wpaper:20

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

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Find related papers by JEL classification:
L5 - Industrial Organization - - Regulation and Industrial Policy
O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
D2 - Microeconomics - - Production and Organizations
E26 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
I3 - Health, Education, and Welfare - - Welfare and Poverty

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Reinikka, Ritva & Svensson, Jakob, 2002. "Coping with poor public capital," Journal of Development Economics, Elsevier, vol. 69(1), pages 51-69, October. [Downloadable!] (restricted)
  2. Robert C. Feenstra, . "Integration Of Trade And Disintegration Of Production In The Global Economy," Department of Economics 98-06, California Davis - Department of Economics. [Downloadable!]
    Other versions:
  3. 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, vol. 54(3), pages 557-78, April.
    Other versions:
  4. Staff Team, 2004. "Serbia and Montenegro: Poverty Reduction Strategy Paper," IMF Staff Country Reports 04/120, International Monetary Fund.
  5. Levenson, Alec R. & Maloney, William F., 1998. "The informal sector, firm dynamics, and institutional participation," Policy Research Working Paper Series 1988, The World Bank. [Downloadable!]
  6. Christian Morrisson, 1995. "What Institutional Framework for the Informal Sector?," OECD Development Centre Policy Briefs 10, OECD Development Centre. [Downloadable!]
  7. 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 1727, The World Bank. [Downloadable!]
  8. 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, vol. 47(2), pages 259-88, January.
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