The formal institutional context of informal entrepreneurship: A cross-national, configurational-based perspective

Abstract

While previous comparative research has identified the formal institutional conditions that differentiate countries on their degree of informal entrepreneurship, this paper examines the characteristics that shape cross-national diversity in its type. Based on a series of fuzzy-set qualitative comparative analyses (fs/QCA) of 138 country cases, we find evidence of causal heterogeneity in the configuration of institutional conditions associated with entrepreneurial outcomes that are informal and growth-oriented and those that are informal and subsistence-oriented. Given our results, we propose that the formal institutional-based conditions that differentiate between types of informal sectors are best identified by the conjoint mixture of strength and weakness of state capabilities across multiple domains, rather than by uniform weakness, or voids, along all state functions. In our discussion, we explore the implication of our configurational-based findings for the comparative analysis of national systems of informal entrepreneurship and for the tailoring of policies to account for the multiple institutional-based pathways by which entrepreneurs come to enter into the informal economy. • Informal entrepreneurship differs in kind, rather than just degree, across nations. • Formal institutional configurations shape many paths of entry into informal sector. • Cross-national diversity comes from variance in formal institutional configurations. • Single dimensional indices unlikely to recognize configurational-based diversity. • Tailored policy requires accounting for complex forms of institutional variance.