Publication: Re-thinking the Approach to Informal Businesses: Typologies, Evidence and Future Exploration
Date
2020-11-18
ISSN
Published
2020-11-18
Author(s)
Marusic, Andreja
Nielsen, William
Ghossein, Tania
Solf, Sylvia
Abstract
Interventions to incentivize business
formalization over the past decades have shown mixed results
(Bruhn and McKenzie, 2013; Bruhn and McKenzie, 2018; Floridi
et al., 2019) and brought limited knowledge on how to
address informality in a systematic way. Adding to the
challenge is determining whether informality should be a
direct target, or is rather something indirectly impacted
through development, improved governance, better regulation
and improved public services (Loayza 2016; Loayza, 2007;
Perry et al., 2007; World Bank, 2009). The informal sector
includes businesses, workers, and activities operating
outside the legal and regulatory systems (Loayza 2016). The
scale of the informal sector in emerging and developing
economies, which accounts for 25 to 40 percent of GDP and
often more than 60 percent of employment (World Bank 2020),
merits rethinking approaches to formalization. To support
greater rates of formalization, this note proposes four
specific areas for further research and pilot interventions:
1) supporting informal clusters, 2) providing support to
informal businesses without a target of formalization, 3)
simplified, intermediate and temporary legal statuses of
informal businesses to better align with business needs and
government goals, and 4) understanding behavioral insights
that influence businesses’ decisions to inform policymaking.
Citation
“Marusic, Andreja; Nielsen, William; Ghossein, Tania; Solf, Sylvia. 2020. Re-thinking the Approach to Informal Businesses: Typologies, Evidence and Future Exploration. Finance, Competitiveness and Innovation in Focus. © World Bank, Washington, DC. http://hdl.handle.net/10986/34814 License: CC BY 3.0 IGO.”