Economic Growth and Poverty: Does Formalisation of Informal Enterprises Matter?

Kappel, Robert and Ishengoma, Esther K. (2006): Economic Growth and Poverty: Does Formalisation of Informal Enterprises Matter? Published in: GIGA Working Papers No. 20 (2006)

Abstract

The informal sector (IS) in developing countries plays significant roles viz., the provision of employment, incomes and supplying ignored markets. However, the working and employment conditions in the sector are still poor. Thus, its expansion and changing structures have drawn the attention of scholars and international policy makers on factors hindering its formalisation. Among the addressed factors include high costs of formalisation and lack of incentives to operate in the formal sector. To overcome these factors, various approaches have been adopted by different stakeholders. The paper assesses these approaches, factors related to informality-formality trade-off and the question of formalisation as a solution for firms’ growth. Looking at the problems faced by informal enterprises and the literature addressing options to accelerate the formalisation of informal enterprises, the paper briefly summarises the weaknesses of these approaches.

• Item Type: MPRA Paper
• Institution: GIGA
• Language: English
• Keywords: informal sector; small enterprises; formal and informal institutions; informality; poverty; economic growth
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity; L - Industrial Organization > L5 - Regulation and Industrial Policy; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E26 - Informal Economy ; Underground Economy; D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory

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