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Self-employment in the developing world

  • Gindling, T. H.
  • Newhouse, David

This paper analyzes heterogeneity among the self-employed in 74 developing countries, representing two-thirds of the population of the developing world. After profiling how worker characteristics vary by employment status, it classifies self-employed workers outside agriculture as"successful"or"unsuccessful"entrepreneurs, based on two measures of success: whether the worker is an employer, and whether the worker resides in a non-poor household. Four main findings emerge. First, jobs exhibit a clear pecking order, with household welfare and worker education highest for employers, followed by wage and salaried employees, non-agricultural own-account workers, non-agricultural unpaid family workers, and finally agricultural workers. Second, a substantial minority of own-account workers reside in non-poor households, suggesting that their profits are often a secondary source of household income. Third, as per capita income increases, the structure of employment shifts rapidly, first out of agriculture into unsuccessful non-agricultural self-employment, and then mainly into non-agricultural wage employment. Finally, roughly one-third of the unsuccessful entrepreneurs share similar characteristics with their successful counterparts, suggesting they have the potential to be successful but face constraints to growth. The authors conclude that although interventions such as access to credit can benefit a substantial portion of the self-employed, effectively targeting the minority of self-employed with higher growth potential is important, particularly in low-income contexts. The results also highlight the potential benefits of policies that facilitate shifts in the nature of work, first from agricultural labor into non-agricultural self-employment, and then into wage and salaried jobs.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6201.

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Date of creation: 01 Sep 2012
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Handle: RePEc:wbk:wbrwps:6201
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  1. Cho, Yoon Y. & Honorati, Maddalena, 2013. "Entrepreneurship Programs in Developing Countries: A Meta Regression Analysis," IZA Discussion Papers 7333, Institute for the Study of Labor (IZA).
  2. Simeon Djankov & Yingyi Qian & Gerard Roland & Ekaterina Zhuravskaya, 2005. "Who Are China’s Entrepreneurs?," Working Papers w0047, Center for Economic and Financial Research (CEFIR).
  3. Bosch, Mariano & Maloney, William F., 2007. "Comparative Analysis of Labor Market Dynamics Using Markov Processes: An Application to Informality," IZA Discussion Papers 3038, Institute for the Study of Labor (IZA).
  4. Gindling, T. H. & Newhouse, David, 2012. "Self-employment in the developing world," Policy Research Working Paper Series 6201, The World Bank.
  5. Simeon Djankov & Edward Miguel & Yingyi Qian & Gérard Roland & Ekaterina Zhuravskaya, 2005. "Who are Russia's Entrepreneurs?," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 587-597, 04/05.
  6. Maloney, William, 2003. "Informality revisited," Policy Research Working Paper Series 2965, The World Bank.
  7. Carlo Pietrobelli & Roberta Rabellotti & Matteo Aquilina, 2004. "An empirical study of the determinants of self-employment in developing countries," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(6), pages 803-820.
  8. Victor E. Tokman, 2007. "Modernizing the informal sector," Working Papers 42, United Nations, Department of Economics and Social Affairs.
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