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Economic Growth and Poverty: Does Formalisation of Informal Enterprises Matter?

  • Kappel, Robert
  • Ishengoma, Esther K.

The informal sector (IS) in developing countries plays significant roles viz., the provision of employment, incomes and supplying ignored markets. However, the working and employment conditions in the sector are still poor. Thus, its expansion and changing structures have drawn the attention of scholars and international policy makers on factors hindering its formalisation. Among the addressed factors include high costs of formalisation and lack of incentives to operate in the formal sector. To overcome these factors, various approaches have been adopted by different stakeholders. The paper assesses these approaches, factors related to informality-formality trade-off and the question of formalisation as a solution for firms’ growth. Looking at the problems faced by informal enterprises and the literature addressing options to accelerate the formalisation of informal enterprises, the paper briefly summarises the weaknesses of these approaches.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1456.

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Date of creation: 2006
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Handle: RePEc:pra:mprapa:1456
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  1. Howell, Jude & Singh, Andrea, 2002. "Good practice study in Shanghai on employment services for the informal economy," ILO Working Papers 355191, International Labour Organization.
  2. Xaba, Jantjie & Horn, Pat & Motala, Shirin & Singh, Andrea, 2002. "Informal sector in Sub-Saharan Africa," ILO Working Papers 355190, International Labour Organization.
  3. International Monetary Fund, 2004. "Serbia and Montenegro; Poverty Reduction Strategy Paper," IMF Staff Country Reports 04/120, International Monetary Fund.
  4. Klein, Michael, 2003. "Ways out of poverty : diffusing best practices and creating capabilities - perspectives on policies for poverty reduction," Policy Research Working Paper Series 2990, The World Bank.
  5. 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.
  6. Loayza, Norman A., 1997. "The economics of the informal sector : a simple model and some empirical evidence from Latin America," Policy Research Working Paper Series 1727, The World Bank.
  7. A. E. Jackle & C. A. Li, 2003. "Firm Dynamics and Institutional Participation: A Case Study on Informality of Micro-Enterprises in Peru," Economics Discussion Papers 552, University of Essex, Department of Economics.
  8. Reinikka, Ritva & Svensson, Jakob, 2002. "Coping with poor public capital," Journal of Development Economics, Elsevier, vol. 69(1), pages 51-69, October.
  9. Abigail Barr, 1998. "Enterprise performance and the functional diversity of social capital," Economics Series Working Papers WPS/1998-01, University of Oxford, Department of Economics.
  10. Robert C. Feenstra, 1998. "Integration of Trade and Disintegration of Production in the Global Economy," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 31-50, Fall.
  11. Levenson, Alec R. & Maloney, William F., 1998. "The informal sector, firm dynamics, and institutional participation," Policy Research Working Paper Series 1988, The World Bank.
  12. Christian Morrisson, 1995. "What Institutional Framework for the Informal Sector?," OECD Development Centre Policy Briefs 10, OECD Publishing.
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