Abstract
Recognizing that enterprises operate at varying levels of informality, this paper evaluates the determinants of their degree of informality. Reporting a 2012 survey of 300 informal microenterprises in the city of Lahore in Pakistan, the finding is that the key predictors of their level of informality are the characteristics of the entrepreneur and enterprise, rather than their motives or the wider formal and informal institutional compliance environment. Lower degrees of informality are associated with women, older, educated, and higher income entrepreneurs and older enterprises with employees in the manufacturing sector. The paper concludes by discussing the theoretical and policy implications.
Highlights
Based on the recognition that entrepreneurs and enterprises operating in the informal sector are a persistent and extensive phenomena across the global economic landscape, a burgeoning literature has discussed whether such entrepreneurs and enterprises are driven out of necessity into the informal sector due to their exclusion from the formal sector, whether they voluntarily exit the formal sector, or some combination of the two (Maloney, 2004; Perry et al, 2007; Williams, Nadin, & Rodgers, 2012)
Of the 300 micro-enterprises surveyed employing less than 10 employees in the Pakistani city of Lahore in 2012, and as Table 2 displays, 29% were totally informal enterprises and 7% totally formal, nearly two-thirds of the enterprises were neither totally informal nor totally formal (33% displaying a high level of informality and 30% a low level of informality)
Reporting a survey of 300 micro-enterprises in the city of Lahore in Pakistan, this has revealed that 29% are totally informal enterprises, 33% display a high level of informality, 30% a low level of informality, and 7% are totally formal, but that the major determinants of the level of informality of micro-enterprises are the characteristics of the entrepreneur and enterprise, rather than their motives and the wider formal and informal institutional environment
Summary
Based on the recognition that entrepreneurs and enterprises operating in the informal sector are a persistent and extensive phenomena across the global economic landscape, a burgeoning literature has discussed whether such entrepreneurs and enterprises are driven out of necessity into the informal sector due to their exclusion from the formal sector, whether they voluntarily exit the formal sector, or some combination of the two (Maloney, 2004; Perry et al, 2007; Williams, Nadin, & Rodgers, 2012). The emergent finding has been that there is what Fields (1990, 2005) terms an exclusion-driven ‘‘lower tier” and exit-driven ‘‘upper tier” of informal sector entrepreneurship and enterprise. This literature has so far only sought explanations for entrepreneurs and enterprises operating in the informal rather than the formal sector. To start to fill this gap, the aim of this paper is to start to evaluate the determinants of the level of informality of informal microenterprises The reason this is important is because most supra-national agencies and governments are seeking to facilitate the formalization of informal sector enterprises and entrepreneurs (European Commission, 2007; ILO, 2014; OECD, 2012). Unless the determinants of the level of informality of informal enterprises and entrepreneurs are known, targeted and tailored policy initiatives cannot be developed to enable informal enterprises and entrepreneurs to progress along the spectrum from informality to formality
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