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Informal Entrepreneurship: Institutional Drivers and Productivity Consequences

Author

Listed:
  • Erkko Autio

    (Imperial College London)

  • Kun Fu

    (Loughborough University London)

  • Donghyun Park

    (Asian Development Bank)

  • Shu Tian

    (Asian Development Bank)

Abstract

Using Global Entrepreneurship Monitor and World Bank data, we produce a novel estimation for the prevalence of informal entrepreneurship in 60 countries in the period 2006– 2022. Using a real option framework, we test the effect of business regulation, property rights protection, and the rule of law on formal and informal entrepreneurship prevalence. Finally, we test the influence of a country’s informal entrepreneurship rate on entrepreneurial growth aspirations by individuals. We find that burdensome business regulations increase informal entry relative to formal entry. We also find that stronger property rights and rule of law encourage formal entrepreneurship and discourage informal entrepreneurship. Further, the analysis finds that a high rate of informal entrepreneurship discourages entrepreneurs’ growth aspirations and negatively moderates the relationship between the entrepreneur’s gender and growth aspirations.

Suggested Citation

  • Erkko Autio & Kun Fu & Donghyun Park & Shu Tian, 2025. "Informal Entrepreneurship: Institutional Drivers and Productivity Consequences," ADB Economics Working Paper Series 808, Asian Development Bank.
    • Handle: RePEc:ris:adbewp:021669
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    File URL: https://www.adb.org/publications/informal-entrepreneurship-institutional-drivers
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    Keywords

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    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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