Informality and Development
We establish five facts about the informal economy in developing countries. First, it is huge, reaching about half of the total in the poorest countries. Second, it has extremely low productivity compared to the formal economy: informal firms are typically small, inefficient, and run by poorly educated entrepreneurs. Third, although avoidance of taxes and regulations is an important reason for informality, the productivity of informal firms is too low for them to thrive in the formal sector. Lowering registration costs neither brings many informal firms into the formal sector, nor unleashes economic growth. Fourth, the informal economy is largely disconnected from the formal economy. Informal firms rarely transition to formality, and continue their existence, often for years or even decades, without much growth or improvement. Fifth, as countries grow and develop, the informal economy eventually shrinks, and the formal economy comes to dominate economic life. These five facts are most consistent with dual models of informality and economic development.
|Date of creation:|
|Contact details of provider:|| Postal: 1737 Cambridge Street, Cambridge, MA 02138|
Web page: http://scholar.harvard.edu
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Erik Hurst & Benjamin Wild Pugsley, 2011.
"What do Small Businesses Do?,"
Brookings Papers on Economic Activity,
Economic Studies Program, The Brookings Institution, vol. 42(2 (Fall)), pages 73-142.
- Erik Hurst & Benjamin Wild Pugsley, 2011. "What Do Small Businesses Do?," NBER Working Papers 17041, National Bureau of Economic Research, Inc.
- Miguel Jaramillo, 2013. "Is there demand for formality among informal firms? Evidence from microfirms in downtown Lima," Avances de Investigación 0013, Grupo de Análisis para el Desarrollo (GRADE).
- Suresh de Mel & David McKenzie & Christopher Woodruff, 2013. "The Demand for, and Consequences of, Formalization among Informal Firms in Sri Lanka," American Economic Journal: Applied Economics, American Economic Association, vol. 5(2), pages 122-150, April.
- de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2012. "The demand for, and consequences of, formalization among informal firms in Sri Lanka," Policy Research Working Paper Series 5991, The World Bank.
- Suresh De Mel & David McKenzie & Christopher Woodruff, 2012. "The demand for, and consequences of, formalization among informal firms in Sri Lanka," NBER Working Papers 18019, National Bureau of Economic Research, Inc.
- de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2012. "The Demand for, and Consequences of, Formalization among Informal Firms in Sri Lanka," IZA Discussion Papers 6442, Institute for the Study of Labor (IZA).
- Rauch, James E., 1991. "Modelling the informal sector formally," Journal of Development Economics, Elsevier, vol. 35(1), pages 33-47, January. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:qsh:wpaper:171301. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Richard Brandon)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.