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Informality, Ethnicity and Productivity: Evidence from Small Manufacturers in Kenya

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Author Info

  • Bigsten, Arne

    (Department of Economics, School of Economics and Commercial Law, Göteborg University)

  • Kimuyu, Peter

    (Institute of Policy Analysis & Research, Nairobi, Kenya)

  • Lundvall, Karl

    (Department of Economics, School of Economics and Commercial Law, Göteborg University)

Abstract

A rapidly increasing share of firms in Kenya consists of not only small but also informal establishments. This paper investigates the role of ethnicity and other factors in the choice of formality status at start-up. Differences in productivity, investment and growth across the formality and ethnicity divide are also investigated. The results show that while African-owned firms are more likely to start informally, enterprises owned by either professionals or persons who are older are less likely to start informally. African informal firms are more efficient than African formal firms are, but both categories are less efficient than Asian-owned formal firms are. We conclude that ethnicity is important in explaining choice of formality status, while the network implications of ethnicity account for the differences in firm productivity, investment and growth prospects. It is possible to mainstream informal enterprises by reducing cost related to business registration. However, additional analysis is needed to unpack the ethnic variable en route to developing policy interventions for improving the performance of small scale manufacturing in Kenya.

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File URL: http://swopec.hhs.se/gunwpe/papers/gunwpe0027.pdf
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Bibliographic Info

Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 27.

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Length: 28 pages
Date of creation: 25 Aug 2000
Date of revision:
Handle: RePEc:hhs:gunwpe:0027

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Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/
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Related research

Keywords: informal sector; informality; ethnicity; productivity; manufacturing; Kenya;

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References

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  1. Marcel Fafchamps, 1999. "Networks, communities and markets in sub-Saharan Africa: implications for firm growth and investment," CSAE Working Paper Series 1999-24, Centre for the Study of African Economies, University of Oxford.
  2. 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.
  3. Fortin, Bernard & Marceau, Nicolas & Savard, Luc, 1997. "Taxation, wage controls and the informal sector," Journal of Public Economics, Elsevier, vol. 66(2), pages 293-312, November.
  4. repec:fth:oxesaf:99-24 is not listed on IDEAS
  5. Arne Bigsten & Paul Collier & Stefan Dercon & Marcel Fafchamps & Bernard Gauthier & Jan Willem Gunning & Abena Oduro & Remco Oostendorp & Catherine Pattillo & Måns Söderbom & Francis Teal & Albert Z, 1998. "Contract flexibility and conflict resolution: Evidence from African manufacturing," CSAE Working Paper Series 1998-21, Centre for the Study of African Economies, University of Oxford.
  6. Mead, Donald C. & Morrisson, Christian, 1996. "The informal sector elephant," World Development, Elsevier, vol. 24(10), pages 1611-1619, October.
  7. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
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Citations

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Cited by:
  1. Bigsten, Arne & Durevall, Dick, 2002. "Is Globalisation Good for Africa?," Working Papers in Economics 67, University of Gothenburg, Department of Economics.
  2. Fenske, James, 2010. "Institutions in African history and development: A review essay," MPRA Paper 23120, University Library of Munich, Germany.
  3. Alberto Alesina & Eliana La Ferrara, 2004. "Ethnic Diversity and Economic Performance," Development Working Papers 193, Centro Studi Luca d\'Agliano, University of Milano.

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