The Impact of the Informal Sector on Urban Household Consumption Expenditure in Burie Town, Ethiopia

Purpose: An important source of income and employment for the urban poor, the informal sector nonetheless faces difficulties like unstable markets and restricted credit availability. The aim of this study is to evaluate the impact of informal sector engagement on household consumption patterns. Design/Methodology/Approach: In terms of methodology the study is using a mixed-methods approach, with 385 households surveyed using a three-stage sample procedure (purposive, stratified, and random sampling). Descriptive statistics, binary logistic regression, and propensity score matching (PSM) are used in data analysis to assess the factors that influence participation in the informal sector and the consequences for consumption. 53.77% of selected households work in the informal sector, mainly in services (30.92%), trade (27.5%), and production (27.5%), according to key findings. Among the challenges are marketing issues (27.05%) and restricted access to financing (29.95%). Findings: The findings of the regression show, that while more income decreases involvement, younger, less educated people, women, and larger families are more likely to participate. Involving the informal sector increases household consumption expenditure by 780–1,006 birr, according to PSM study, underscoring its economic significance. Practical Implications: The researcher suggests strategies to legalize businesses and upgrade urban infrastructure in addition to improving financial inclusion, occupational training, and social protection for informal workers. Originality/Value: In Burie Town, West Gojjam Zone, Ethiopia, this study looks at how the informal sector affects urban family consumption spending.