What is the informal sector? Most low- and middle-income countries are characterised by a large informal sector, which implies that a substantial fraction of economic activity in these countries is completely unregulated. The difference between the formal and informal sectors relates to whether activities are monitored by the government and comply with relevant laws and regulations - the formal sector meets this criteria, whilst the informal sector does not. This has important implications for the behaviour of firms, workers, families, and consumers, with these micro-level consequences of informality potentially combining to have important effects on aggregate outcomes such as productivity, output, and growth.
This VoxDevLit summarises a wide range of studies ranging from well-identified empirical analyses to macro and structural equilibrium models of informality. We examine the challenges, advantages, and causes of the informal sector, alongside establishing a clear definition of what the informal sector is. The final goal is to provide an accessible, integrated understanding of the causes and consequences of informality for economic development.
Informality: Presentation of key takeaways
For our launch event, Gabriel Ulyssea joined us to present the key takeaways from this VoxDevLit, highlighting policy relevant results from recent research on the causes and consequences of informality and the informal sector.