Spatial Inequality and Informality in Kenya’s Firm Network
The spatial configuration of domestic supply chains plays a crucial role in the transmission of shocks. This paper investigates the representativeness of formal firm-to-firm trade data in capturing overall domestic trade patterns in Kenya — a context with a high prevalence of informal economic activity. It first documents a series of stylized facts and shows that informal economic activity is not randomly distributed across space and sectors, with a higher incidence of informality in downstream sectors and smaller regional markets. The paper then links granular transaction-level data on formal firms with data on informal economic activity to estimate a structural model and predict a counterfactual network that accounts for informal firms. The findings show that formal sector data overstates the spatial concentration of aggregate trade flows and under accounts for trade within regions and across regions with stronger social ties. Additionally, the higher the informality in a sector and region is, the more formal sector data underestimates its vulnerability to domestic output shocks and overestimate its vulnerability to import shocks.
| Main Authors: | , , , |
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| Format: | Working Paper biblioteca |
| Language: | English en_US |
| Published: |
Washington, DC: World Bank
2024-09-30
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| Subjects: | INFORMALITY, SUPPLY CHAINS, SPATIAL INEQUALITY, FIRM NETWORKS, DECENT WORK AND ECONOMIC GROWTH, SDG 8, TRADE, |
| Online Access: | http://documents.worldbank.org/curated/en/099158309302418763/IDU1cbcafe951348e147c4181b218f42b4ec6da5 https://hdl.handle.net/10986/42215 |
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| Summary: | The spatial configuration of domestic
supply chains plays a crucial role in the transmission of
shocks. This paper investigates the representativeness of
formal firm-to-firm trade data in capturing overall domestic
trade patterns in Kenya — a context with a high prevalence
of informal economic activity. It first documents a series
of stylized facts and shows that informal economic activity
is not randomly distributed across space and sectors, with a
higher incidence of informality in downstream sectors and
smaller regional markets. The paper then links granular
transaction-level data on formal firms with data on informal
economic activity to estimate a structural model and predict
a counterfactual network that accounts for informal firms.
The findings show that formal sector data overstates the
spatial concentration of aggregate trade flows and under
accounts for trade within regions and across regions with
stronger social ties. Additionally, the higher the
informality in a sector and region is, the more formal
sector data underestimates its vulnerability to domestic
output shocks and overestimate its vulnerability to import shocks. |
|---|