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

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

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

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Bibliographic Details
Main Authors: Abreha, Kaleb Girma, Cirera, Xavier, Fattal Jaef, Roberto N., Maemir, Hibret Belete, Davies, Elwyn
Format: Working Paper biblioteca
Language:English
English
Published: World Bank, Washington, DC 2022-11
Subjects:MISSING MIDDLE, FIRM SIZE DISTRIBUTION, INFORMALITY, MARKET DISTORTION, ESTABLISHMENT CONCENSUS, MANUFACTURING, INCLUSION OF INFORMAL FIRMS, ENDODGENOUS INFORMALITY,
Online Access:http://documents.worldbank.org/curated/en/099924211162242314/IDU0b070c6340f4d10403d08bd90f758ec6dcf49
http://hdl.handle.net/10986/38324
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Summary:This paper characterizes the firm size distribution by exploiting establishment-level censuses covering both formal and informal firms in Sub-Saharan Africa. The paper finds a "missing middle" in the employment-based size distribution of firms in four Sub-Saharan African countries. This "missing middle" hinges on the inclusion of informal firms, and it is not explained by state- or foreign-owned firms at the top of the size distribution, nor does it emerge from the size distribution of entrants. The paper reconciles these empirical results with a model of firm dynamics with endogenous informality and shows that calibrated values of entry barriers and productivity-dependent idiosyncratic distortions generate a "missing middle" that is consistent with its underlying drivers in the data.

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