Economic Growth and Poverty: Does Formalisation of Informal Enterprises Matter?

Abstract

The informal sector (IS) plays a significant role in developing countries viz. the provision\nof employment, income and supplying ignored markets. However, working and employment\nconditions within the sector are still poor. Its expansion and changing structures\nhave thus drawn the attention of scholars and international policy makers to the factors\nhindering its formalisation. Among the factors addressed are the high costs of formalisation\nand the lack of incentives for operating in the formal sector. A variety of approaches\nhave been adopted by different stakeholders to overcome these factors. This paper assesses\nthese approaches along with the factors related to informality-formality trade-off\nand the issue of formalisation as a solution for firms’ growth. By focussing on the problems\nfaced by informal enterprises and the literature which addresses the options for accelerating\nthe formalisation of informal enterprises, the paper will briefly summarise the\nweaknesses of these approaches.

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