Informal Economy and the World Bank

Many countries have expressed an interest in the size, performance and motivation of the informal sector, especially where the informal sector provides the livelihood and employment for a critical segment of the population. This essay reviews recent literature, methodologies, and relevant Bank studies as a way to share information with country teams interested in expanding their knowledge of the informal sector and related policy debates. Research in a number of regions points to four main areas where development policy can be improved by taking the informal sector into account. First, improvements should be made along a continuum; the heterogeneity among informal firms points to different policy approaches for different types of firms. Second, there should be public-private collaboration on mutual reforms. Many efforts to improve firm performance focus on elements of the production function (labor skills, credit) while treating government mainly as a cost (taxes, cost of compliance with regulations). Yet research reveals that many characteristics of the public regime strongly influence the decisions of firms regarding informality. Third, research indicates a strong relation between basic skills and labor outcomes, particularly in the informal sector, despite the sector's lower average returns. Research also indicates the benefits of targeted training programs. Business services programs have a decidedly mixed record, yet ongoing research is refining results on what works best. Fourth, informal trade is pervasive in developing countries and the networks developed in informal trade -- wholesalers, credit suppliers and money-changers, transporters -- are a strong presence in the informal sector. Yet these kinds of complex and nontransparent trading systems can be discouraging to foreign investors and can otherwise undermine trade policy and the international competitiveness of developing countries. The paper concludes with recommendations.

Bibliographic Details

Main Authors:	Recanatini, Francesca, Benjamin, Nancy, Santini, Massimiliano, Beegle, Kathleen
Language:	English en_US
Published:	World Bank, Washington, DC 2014-05
Subjects:	ACCESS TO SERVICES, ACCOUNTING, ACTION PLAN, AGE GROUP, AGRICULTURE, BANKING SYSTEM, BARRIERS TO ENTRY, BILATERAL TRADE, BUSINESS CLIMATE, BUSINESS DEVELOPMENT, BUSINESS DEVELOPMENT SERVICES, BUSINESS ENTRY, BUSINESS ENVIRONMENT, BUSINESS REGISTRATION, BUSINESS REGULATIONS, BUSINESS SERVICE, BUSINESS SERVICES, BUYERS, CAPABILITY, CDS, CIVIL SERVICE, COMMERCE, COMMODITIES, COMPETITIVENESS, COMPETITORS, CONSUMER GOODS, CONSUMERS, CONTRACTUAL ARRANGEMENTS, CUSTOMER BASE, CUSTOMS, CUSTOMS DECLARATIONS, DAY LABORERS, DEBT, DEVELOPMENT ECONOMICS, DEVELOPMENT POLICY, DISADVANTAGED GROUPS, DISTRIBUTION NETWORK, DOMESTIC WORKERS, DRIVERS, ECONOMIC ACTIVITIES, ECONOMIC ACTIVITY, ECONOMIC COOPERATION, ECONOMIC DEVELOPMENT, ECONOMIC PROGRAMS, ECONOMIC SURVEYS, ELASTICITY, ELECTRICAL ENERGY, EMPLOYEE, EMPLOYMENT, EMPLOYMENT GROWTH, EMPLOYMENT PROSPECTS, EMPLOYMENT STATUS, ENTERPRISE SURVEY, ENTERPRISE SURVEYS, ENTREPRENEURS, ENTREPRENEURSHIP, ESTIMATED WAGE PREMIUM, EXPANSION, EXPORTS, FIRM ENTRY, FIRM LEVEL, FIRM PERFORMANCE, FIRM PRODUCTIVITY, FIRM SIZE, FIRM SURVEYS, FIRM-LEVEL ANALYSIS, FLOW OF GOODS, FLOW OF INFORMATION, FOREIGN TRADE, FORMAL SECTOR WAGE, GDP, GDP PER CAPITA, GLOBAL ECONOMY, GOVERNMENT REVENUES, GROWTH POTENTIAL, HOUSEHOLD ENTERPRISE, HOUSEHOLD ENTERPRISES, HOUSEHOLD SURVEYS, HUMAN CAPITAL, IMPORT QUOTAS, INCOME, INCOME LEVELS, INFORMAL ECONOMY, INFORMAL EMPLOYMENT, INFORMAL SECTOR, INFORMAL SECTOR WORKERS, INFORMATION GAP, INTERNATIONAL COMPETITIVENESS, JOB CREATION, JOBS, LABOR FORCE, LABOR MARKET, LABOR MIGRATION, LABOR MOBILITY, LABOR ORGANIZATION, LABOR PRODUCTIVITY, LABOR REGULATIONS, LABOUR, LAWS, LDCS, LEGAL ENVIRONMENT, LEVEL PLAYING FIELD, LICENSE, LOCAL GOVERNMENT, MANUFACTURING, MARGINAL PRODUCTS, MARKET PLACES, MARKET RESEARCH, MICROENTERPRISES, MIDDLE INCOME COUNTRIES, NATIONAL ECONOMIES, NATIONAL ECONOMY, NETWORKS, NON-FARM EMPLOYMENT, ONE-STOP SHOP, OPEN ACCESS, PAYMENT OF TAXES, PENSIONS, PERFORMANCES, PRIMARY OBJECTIVE, PRIVATE FIRMS, PRIVATE SECTOR, PRIVATE SECTOR DEVELOPMENT, PRIVATE SECTOR JOBS, PRIVATE SECTOR WAGE, PRODUCTION FUNCTION, PRODUCTIVE FIRMS, PRODUCTIVITY DIFFERENTIAL, PRODUCTIVITY GAP, PRODUCTIVITY GROWTH, PROFIT MARGINS, PROFITABILITY, PROPERTY RIGHTS, PROTECTING WORKERS, PUBLIC AGENCIES, PUBLIC EMPLOYMENT, PUBLIC SECTOR EMPLOYMENT, PUBLIC SECTOR JOB, PUBLIC SERVICES, PUBLIC UTILITIES, REGISTRIES, REGULATORY BURDEN, REGULATORY ENVIRONMENT, REGULATORY FRAMEWORKS, RESULT, RESULTS, RETAIL TRADE, RURAL ­ URBAN MIGRATION, SALARIED WORKERS, SAVINGS, SCALE ENTERPRISES, SELF EMPLOYMENT, SHOP, SKILLED LABOR, SKILLS DEVELOPMENT, SMALL BUSINESSES, SMALL ENTERPRISES, SMALL FIRM, SMALL FIRMS, SME, SOCIAL SERVICES, SOCIOLOGISTS, STATE INTERVENTION, SUPPLIER, SUPPLIERS, SUPPLY CHAIN, SUPPLY NETWORKS, TARGETS, TAX CAPACITY, TAX COMPLIANCE, TAX REVENUES, TAXATION, TEMPORARY WORKERS, TOTAL FACTOR PRODUCTIVITY, TOTAL OUTPUT, TRADE FACILITATION, TRADE FLOWS, TRADE POLICIES, TRADE POLICY, TRAINING PROGRAM, TRAINING PROGRAMS, TRANSPORT, UNEMPLOYED, UNEMPLOYMENT, UNFAIR COMPETITION, UNPAID FAMILY WORKERS, URBANIZATION, USES, VALUE ADDED, VENDORS, VOCATIONAL TRAINING, WAGE EMPLOYMENT, WAGE PREMIUM, WEALTH, WEB, WORKER, WORKERS, WORKING CONDITIONS, WORKING POOR, YOUTH EMPLOYMENT,
Online Access:	http://documents.worldbank.org/curated/en/2014/04/19553386/informal-economy-world-bank https://hdl.handle.net/10986/18799
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