Informal–Formal Linkages and Informal Enterprise Performance in Urban West Africa

Employing a unique data set that covers almost 6000 informal enterprises from six West African urban centres, this article examines the backward and forward linkages of these enterprises to the formal sector. Our descriptive analysis shows 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. Further econometric analysis corroborates the importance of the degree of informality for the existence of linkages and shows various enterprise characteristics to be significant determinants. Finally, we analyse whether backward linkages matter for enterprise performance using both ordinary least squares (OLS) and instrumental variable (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.