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Informal-formal Linkages and Informal Enterprise Performance in Urban West Africa

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  • Marcus Böhme, Rainer Thiele

Abstract

Employing a unique dataset that covers almost 6000 informal enterprises from six West African urban centers, this paper examines the backward and forward linkages of these enterprises to the formal sector. We first provide a descriptive analysis of the existing formal-informal linkages. It turns out that formal backward linkages are much more prevalent than formal forward linkages, and that linkages vary with the degree of informality, occurring less frequently if firms have no ties to the formal sector at all or low capital stocks. In the second step, we employ a Probit approach to identify major factors associated with the observed backward linkages. The Probit analysis corroborates the importance of the degree of informality for the existence of linkages and shows various enterprise characteristics to be significant determinants as well. Finally, we analyze whether backward linkages matter for enterprise performance using both OLS and IV estimations. We find a positive and robust impact of backward linkages, whereas the degree of informality of the enterprises in our sample seems to affect firm performance only indirectly through their linkages to the formal sector

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1751.

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Length: 24 pages
Date of creation: Jan 2012
Date of revision:
Handle: RePEc:kie:kieliw:1751

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Keywords: Informal sector; formal-informal linkages; enterprise performance; West Africa;

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  1. Grimm, Michael & Kruger, Jens & Lay, Jann, 2011. "Barriers to entry and returns to capital in informal activities : evidence from Sub-Saharan Africa," Social Protection Discussion Papers 77927, The World Bank.
  2. Aureo de Paula & Jose A. Scheinkman, 2007. "The Informal Sector," PIER Working Paper Archive 07-033, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
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  6. Marcus Böhme & Rainer Thiele, 2011. "Is the Informal Sector Constrained from the Demand Side? Evidence for Six West African Capitals," Kiel Working Papers 1683, Kiel Institute for the World Economy.
  7. Mazumdar, Dipak, 1976. "The urban informal sector," World Development, Elsevier, vol. 4(8), pages 655-679, August.
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  14. Aureo de Paula & Jose A. Scheinkman, 2007. "The Informal Sector, Second Version," PIER Working Paper Archive 07-035, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 17 Oct 2007.
  15. Antonio Ciccone, 2000. "Input chains and industrialization," Economics Working Papers 498, Department of Economics and Business, Universitat Pompeu Fabra.
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Cited by:
  1. Ghani, Ejaz & O'Connell, Stephen D. & Sharma, Gunjan, 2013. "Friend or foe or family ? a tale of formal and informal plants in India," Policy Research Working Paper Series 6588, The World Bank.
  2. Mboutchouang, Vincent De Paul & Kenneck, Joseph Massil & Mbenga Bindop, Kunz Modeste, 2013. "Transmission Intergénérationelle de l’Entrepreneuriat et Performance des Unités de Production Informelles au Cameroun," MPRA Paper 50133, University Library of Munich, Germany, revised Aug 2013.

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