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Is the Informal Sector Constrained from the Demand Side? Evidence for Six West African Capitals

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  • Thiele, Rainer
  • Böhme, Marcus

Abstract

Employing a unique dataset that covers households from six West African capitals, this paper provides new evidence on the demand for informal sector products and services. We first investigate whether demand linkages exist between formal and informal products and distribution channels, and whether there is an overlapping customer base, which would imply that both formal sector wage earners and informal workers buy both formal and informal products using both formal and informal distribution channels. In a second step, we estimate demand elasticities based on Engel curves. We find a strongly overlapping customer base and strong demand-side linkages between the formal and informal sector, with the exception that informal goods are hardly bought through formal distribution channels. The estimated demand elasticities tend to show that rising incomes are associated with a lower propensity to consume informal sector goods and to use informal distribution channels. We therefore conclude that the informal sector in West Africa is likely to be constrained from the demand side. --

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy (IfW) in its series Open Access Publications from Kiel Institute for the World Economy with number 48307.

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Date of creation: 2011
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Handle: RePEc:zbw:ifwkie:48307

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Keywords: Informal sector; formal-informal linkages; Engel curve estimates; West Africa;

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Cited by:
  1. 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.
  2. 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.
  3. M. Arouri & A. Ben Youssef & Ceyhun Elgin, 2014. "Informal economy in Africa: Building human capital to set the Gazelles free," Working Papers 2014/04, Bogazici University, Department of Economics.

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