Indonesia's Informal Economy: Measurement, Evidence, and a Research Agenda

Indonesia has made remarkable economic progress since the Asian Financial Crisis. To sustain its growth and achieve high-income status by 2045, it needs to address the long-standing challenge of informality. Doing so will require a coordinated policy approach informed by robust empirical evidence on the underlying causes and consequences of informality. This paper contributes to this agenda by reviewing the state of knowledge on the informal economy in Indonesia. The study focuses on three key areas of relevance to future policies on informality, namely: (1) key definitions and measures, (2) existing data sources, and (3) findings from previous research. The paper identifies remaining gaps in the existing data and empirical literature and uses this to construct an agenda for future work on the subject.