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19.11.2017
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Unlocking potential: Tackling economic, institutional and social constraints of informal entrepreneurship in Sub-Saharan Africa

 

Proposal for the Multi Donor Trust Fund (MDTF) “Labor Markets, Job Creation, and Economic Growth, Scaling up Research, Capacity Building, and Action on the Ground” on the topic:

Understanding Labor Market Informality in Developing Countries

The proposal was accepted in August 2009.



Main applicant:

Michael Grimm
Institute of Social Studies at Erasmus University Rotterdam, The Hague, The Netherlands


Participating Institutions:
Institute of Social Studies (ISS) at Erasmus University Rotterdam, The Hague, The Netherlands
Observatoire économique et statistique d'Afrique sub-saharienne (AFRISTAT) and its Centre de Recherche Appliquée (CERA), Bamako, Mali
Institute for the World Economy (IfW), Kiel, Germany
Développement Institutions & Analyses de Long Terme (DIAL), Paris, France

 

Summary:

In the past two decades, research on the informal sector has emphasized the heterogeneity of this part of the economy, e.g. in terms of entry costs, firm size, access to credit, forward- and backward linkages as well as human and physical capital endowments. Yet, not much research has investigated the causes of this heterogeneity and the implied inefficiencies. This is true in particular for Sub-Saharan Africa (SSA), where informality dominates urban labor markets. Understanding these causes and the implied inefficiencies is however necessary to design policy interventions that are able to remove the most binding constraints for informal entrepreneurs. Based on a concept of informality adapted to the African context and a comprehensive theoretical framework, the proposed project analyzes the quantitative importance of various constraints to informal enterprises. We distinguish between (i) economic constraints, such as capital market imperfections, the lack of insurance and the lack of demand for informal sector products, (ii) institutional constraints, such as ill-managed government regulations and exposure to corruption, and, (iii) social constraints, such as sharing obligations with the extended family. We intend to examine the nature and the relative importance of these constraints, their interaction and the channels through which they impact on enterprise performance. The empirical basis of our research program is a unique micro data set on informality (1-2-3 surveys) covering seven West-African countries, Madagascar, Peru and Vietnam. For the case of Madagascar we also offer an evaluation of the short and long term effects of a micro-credit program. The integration of the insights emanating from the analysis of the above-mentioned constraints will allow us to evaluate policy options that are able to unlock potential in the informal sector. Our networks, in particular those of AFRISTAT in SSA, will ensure that findings reach potential users through workshops, conferences and training events.


Project Website

PEGNet in short

PEGNet Flyer (PDF)
Videos (on youtube)