Operating in quicksand: dark sides of informal entrepreneurship in extreme poverty contexts

Abstract

Literature on informal economy largely debated on the positive role of informal entrepreneurs toward poverty alleviation in developing countries. However, such contexts are characterized by extreme poverty conditions with institutional voids and resource constraints that affect the entrepreneurial operations. While scholars documented why informality persists in developing countries, and what lead informal entrepreneurs to avoid the transition to formal economy, we currently miss the mechanisms by which informal entrepreneurs can effectively operate in contexts of extreme poverty. Our paper addresses this gap through a qualitative research based on 58 informal entrepreneurs in Uganda and Ghana. We discovered that informal entrepreneurs operate through practices of embeddedness in community to get necessary resources and creating informal institutions to fill institutional voids. However, such entrepreneurial practices generate also dark side effects, which also reinforce each other in a cross-bracing mechanism. We then theorized such dynamic of a cross-braced interplay between community embeddedness and informal institutions revealing how informal entrepreneurs are trapped in operating in a ‘quicksand’, which is the main cause of persistence in poverty condition. With our paper, we contribute to the literature on informal entrepreneurship in extreme-poor contexts, and especially we extend literature on the entrepreneurial processes which lead entrepreneurs to persist in informality. Future research and limitations are offered as well.