PAKISTAN’S INFORMAL SECTOR: Review of Evidence and Policy Issues

The importance and usefulness of the informal sector (IFS) is now well-established in the development literature. In this paper, we survey the rapidly growing literature on Pakistan's informal sector and attempt to synthesize recent empirical evidence. We envisage that the IFS has gained overwhelming importance in recent years due to its size, earnings potential, employment and skill generation, and growth potential for the firms. In particular, we focus on earnings functions, skill formation under ustad-shagird system, and prospects for firm's growth by examining the macro policy environment, sub-contracting arrangements, access to capital, technology adaptation, markets, and firm's location. Working womens' production relationships are also illustrated briefly. We present areas where government assistance could be useful for this sector's development in future. We note, that due to gaps in the coverage of existing research, it is difficult to draw inferences for economic policy in some areas.