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Deconstructing the Missing Middle : Informality and Growth of Firms in Sub-Saharan Africa

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Listed:
  • Abreha,Kaleb Girma
  • Cirera,Xavier
  • Davies,Elwyn Adriaan Robin
  • Fattal Jaef,Roberto N.
  • Maemir,Hibret Belete

Abstract

This paper characterizes the firm size distribution by exploiting establishment-level censusescovering both formal and informal firms in Sub-Saharan Africa. The paper finds a "missing middle" in theemployment-based size distribution of firms in four Sub-Saharan African countries. This "missingmiddle" hinges on the inclusion of informal firms, and it is not explained by state- or foreign-owned firms at thetop of the size distribution, nor does it emerge from the size distribution of entrants. The paper reconciles theseempirical results with a model of firm dynamics with endogenous informality and shows that calibrated values ofentry barriers and productivity-dependent idiosyncratic distortions generate a "missing middle" that isconsistent with its underlying drivers in the data.

Suggested Citation

  • Abreha,Kaleb Girma & Cirera,Xavier & Davies,Elwyn Adriaan Robin & Fattal Jaef,Roberto N. & Maemir,Hibret Belete, 2022. "Deconstructing the Missing Middle : Informality and Growth of Firms in Sub-Saharan Africa," Policy Research Working Paper Series 10233, The World Bank.
    • Handle: RePEc:wbk:wbrwps:10233
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    References listed on IDEAS

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