Vaillant, JuliaGrimm, MichaelLay, JannRoubaud, François2017-05-302017-05-302011-09https://hdl.handle.net/10986/26798This paper investigates the dynamics of the informal sector in Madagascar during a period of fragile growth. Overall, the behavior of informal firms in terms of earnings, employment and capital accumulation points to a degree of heterogeneity which goes beyond a simple dualistic model and even a more refined model that would distinguish between an upper entrepreneurial and a lower subsistence tier within the informal sector. However, in line with the dualistic model, the informal sector indeed fulfills a labor absorbing function in times of crisis. During the growth period authors see capital accumulation in most of the sectors and lots of evidence that households expand their activities. However, this happens mainly through the creation of new firms instead of the expansion of existing ones, which is consistent with much higher returns at very low levels of capital. More rapid expansion can be observed in sectors that operate with lower capital intensity, which is also consistent with risk or credit constraints as major deterrents to expansion. While there is some indication that total factor productivity increased over time, returns to capital and labor where not higher at the end of the observation period than at the beginning. Returns are also rather low at high levels of capital. These findings point to a limited growth potential of the informal sector as a whole. The heterogeneity in capital returns hints at large inefficiencies in allocating capital across informal firms.en-USCC BY 3.0 IGOACCESS TO CAPITALACCESS TO CREDITACCESS TO FINANCEACCESS TO FORMAL CREDITACCOUNTSACCUMULATION RATEADVANCED ECONOMIESADVANCED ECONOMYAGRICULTURAL ECONOMICSBANK CREDITBANK POLICYBARRIERS TO ENTRYBIASESBORROWINGBUSINESS ACTIVITIESBUSINESS ACTIVITYBUSINESS ASSOCIATIONSBUSINESS ECONOMICSBUSINESS OWNERSBUSINESS RISKBUSINESS RISKSCAPACITY BUILDINGCAPITAL ACCUMULATIONCAPITAL CONSTRAINTCAPITAL CONSTRAINTSCAPITAL COSTCAPITAL COSTSCAPITAL INJECTIONCAPITAL MARKETCAPITAL MARKETSCAPITAL REQUIREMENTSCAPITAL RETURNSCAPITAL SHORTAGESCAPITAL STOCKCAPITAL STOCKSCHECKSCOLLATERALCONTRACTUAL OBLIGATIONSCOST OF CAPITALCREDIT CONSTRAINED FIRMSCREDIT CONSTRAINTCREDIT CONSTRAINTSCREDIT HISTORYCREDIT INSTITUTIONSCREDIT MARKETCREDIT MARKETSCREDIT RATIONINGDEGREES OF RISKDEMOGRAPHIC CHARACTERISTICSDEVELOPING COUNTRIESDEVELOPING COUNTRYDEVELOPMENT ECONOMICSDIVERSIFICATIONDUMMY VARIABLEDUMMY VARIABLESDURABLEDURABLE GOODSEARNINGSECONOMETRIC MODELSECONOMIC CONSTRAINTSECONOMIC DEVELOPMENTECONOMIC GROWTHECONOMIC POLICIESECONOMIC STATISTICSENDOWMENTSENTERPRISE PERFORMANCEENTREPRENEURENTREPRENEURIAL ACTIVITIESENTREPRENEURIAL ACTIVITYENTREPRENEURSENTRY BARRIERSEQUIPMENTEXCESSIVE RISKEXPECTED UTILITYEXPECTED VALUEEXPENDITUREEXPENDITURESEXTERNAL FINANCEFAMILY FINANCEFAMILY LOANSFARMERSFEMALE ENTREPRENEURSFINANCIAL MEANSFINANCIAL RESOURCESFINANCIAL SUPPORTFIXED COSTSFORMAL BANKSGDPGROUP OF FIRMSGROWTH THEORYHIGH INTEREST RATESHOLDINGHOUSEHOLD WEALTHHOUSEHOLDSHUMAN CAPITALINCOME GROWTHINFORMATION ASYMMETRIESINFORMATION ON ENTREPRENEURSINFORMATION ON INVESTMENTINSTRUMENTINSURANCEINSURANCE MARKETINSURANCE MARKETSINSURANCE PRODUCTSINTEREST RATEINTERNAL FINANCEINTERNAL FUNDSINVENTORIESINVENTORYINVESTINGINVESTMENT BEHAVIORJOB CREATIONLABOR FORCE SURVEYLABOR MARKETLABOR MARKETSLACK OF ACCESSLEVEL OF RISKLIQUID WEALTHLIQUIDITYLIQUIDITY CONSTRAINTLIQUIDITY CONSTRAINTSLIQUIDITY PREMIUMLIQUIDITY PROBLEMSLOANLOTTERYMARGINAL COSTMARGINAL PRODUCTMARGINAL UTILITYMARGINAL UTILITY OF CONSUMPTIONMARKET CONSTRAINTSMARKET ECONOMYMARKET FAILUREMARKET FAILURESMARKET INTEREST RATEMARKET INTEREST RATESMICRO DATAMICRO ENTERPRISESMICRO-CREDITMICRO-ENTERPRISEMICRO-FINANCEMICRO-FINANCE INSTITUTIONSMICROCREDITMICROENTERPRISESMIDDLE INCOME COUNTRIESMONEY LENDERSMONEYLENDERSMORAL HAZARDOPPORTUNITY COSTOPPORTUNITY COSTSPHYSICAL CAPITALPOLITICAL ECONOMYPORTFOLIOPRICE RISKPRICE UNCERTAINTYPRODUCTION FUNCTIONPRODUCTIVE INVESTMENTPROFITABILITYPURCHASING POWERPURCHASING POWER PARITYRATE OF RETURNRATES OF RETURNRECEIPTSREINVESTMENTRETAINED EARNINGSRISK AVERSIONRISK PERCEPTIONSRISK PREMIUMRISK-AVERSE INDIVIDUALSSAFE ASSETSAVINGSSELF-EMPLOYMENTSMALL BUSINESSSMALL ENTERPRISESSMALL-SCALE ENTREPRENEURSSOURCE OF CREDITSOURCES OF FINANCESTART-UPTAXTAXISTRADE SECTORTRADINGTRANSITION COUNTRYTRANSITION ECONOMYTRUST FUNDUNIONVALUE ADDEDWEALTHWorking PaperWorld Bank10.1596/26798