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Informality, Ethnicity and Productivity: Evidence from Small Manufacturers in Kenya

  • Bigsten, Arne

    (Department of Economics, School of Economics and Commercial Law, Göteborg University)

  • Kimuyu, Peter

    (Institute of Policy Analysis & Research, Nairobi, Kenya)

  • Lundvall, Karl

    (Department of Economics, School of Economics and Commercial Law, Göteborg University)

A rapidly increasing share of firms in Kenya consists of not only small but also informal establishments. This paper investigates the role of ethnicity and other factors in the choice of formality status at start-up. Differences in productivity, investment and growth across the formality and ethnicity divide are also investigated. The results show that while African-owned firms are more likely to start informally, enterprises owned by either professionals or persons who are older are less likely to start informally. African informal firms are more efficient than African formal firms are, but both categories are less efficient than Asian-owned formal firms are. We conclude that ethnicity is important in explaining choice of formality status, while the network implications of ethnicity account for the differences in firm productivity, investment and growth prospects. It is possible to mainstream informal enterprises by reducing cost related to business registration. However, additional analysis is needed to unpack the ethnic variable en route to developing policy interventions for improving the performance of small scale manufacturing in Kenya.

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File URL: http://swopec.hhs.se/gunwpe/papers/gunwpe0027.pdf
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Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 27.

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Length: 28 pages
Date of creation: 25 Aug 2000
Date of revision:
Handle: RePEc:hhs:gunwpe:0027
Contact details of provider: Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/
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  1. Marcel Fafchamps, 1999. "Networks,communities and markets in Sub-Saharan Africa: implications for firm growth and investment," Economics Series Working Papers WPS/1999-24, University of Oxford, Department of Economics.
  2. Mead, Donald C. & Morrisson, Christian, 1996. "The informal sector elephant," World Development, Elsevier, vol. 24(10), pages 1611-1619, October.
  3. Paul Collier & Marcel Fafchamps & Francis Teal & Stefan Dercon, 1998. "Contract flexibility and conflict resolution: evidence from African manufacturing," Economics Series Working Papers WPS/1998-21, University of Oxford, Department of Economics.
  4. Ranis, Gustav & Stewart, Frances, 1999. "V-Goods and the Role of the Urban Informal Sector in Development," Economic Development and Cultural Change, University of Chicago Press, vol. 47(2), pages 259-88, January.
  5. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  6. Fortin, Bernard & Marceau, Nicolas & Savard, Luc, 1997. "Taxation, wage controls and the informal sector," Journal of Public Economics, Elsevier, vol. 66(2), pages 293-312, November.
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