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The Unofficial Economy in Africa

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  • Rafael La Porta
  • Andrei Shleifer

Abstract

We examine the productivity of informal firms (those that are not registered with the government) in 24 African countries using field work and World Bank firm level data. We find that productivity jumps sharply if we compare small formal firms to informal firms, and rises rapidly with the size of formal firms. Critically, informal firms appear to be qualitatively different than formal firms: they are smaller in size, produce to order, are run by managers with low human capital, do not have access to external finance, do not advertise their products, and sell to largely informal clients for cash. Informal firms thus occupy a very different market niche than formal firms do, and rarely become formal because there is very little demand for their products from the formal sector.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16821.

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Date of creation: Feb 2011
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Publication status: Forthcoming: The Unofficial Economy in Africa , Rafael La Porta, Andrei Shleifer. in African Successes: Government and Institutions , Edwards, Johnson, and Weil. 2014
Handle: RePEc:nbr:nberwo:16821

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  1. Chang-Tai Hsieh & Peter J Klenow, 2008. "Misallocation and Manufacturing TFP in China and India," 2008 Meeting Papers 121, Society for Economic Dynamics.
  2. Lucia Foster & John Haltiwanger & Chad Syverson, 2005. "Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?," Working Papers 05-11, Center for Economic Studies, U.S. Census Bureau.
  3. de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2007. "Measuring microenterprise profits : don't ask how the sausage is made," Policy Research Working Paper Series 4229, The World Bank.
  4. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-42, March.
  5. Abhijit V. Banerjee & Esther Duflo, 2008. "What Is Middle Class about the Middle Classes around the World?," Journal of Economic Perspectives, American Economic Association, vol. 22(2), pages 3-28, Spring.
  6. Rauch, James E., 1991. "Modelling the informal sector formally," Journal of Development Economics, Elsevier, vol. 35(1), pages 33-47, January.
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Cited by:
  1. Bruhn, Miriam, 2012. "A tale of two species : revisiting the effect of registration reform on informal business owners in Mexico," Policy Research Working Paper Series 5971, The World Bank.
  2. Thiele, Rainer & Böhme, Marcus, 2011. "Is the Informal Sector Constrained from the Demand Side? Evidence for Six West African Capitals," Proceedings of the German Development Economics Conference, Berlin 2011 76, Verein für Socialpolitik, Research Committee Development Economics.
  3. Marcus Böhme, Rainer Thiele, 2012. "Informal-formal Linkages and Informal Enterprise Performance in Urban West Africa," Kiel Working Papers 1751, Kiel Institute for the World Economy.

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