Uneven Contributions: Informal Entrepreneurship and Sustainability in the Global South

Abstract

ABSTRACT Informal entrepreneurship dominates economic activity across the Global South, yet its role in sustainable development remains contested. While informal enterprises generate substantial income and employment contributing 40%–60% of GDP and engaging over 70% of the workforce in many developing regions, their broader social and environmental consequences are insufficiently understood. Drawing on the triple bottom line (TBL) framework, this study examines how informal entrepreneurship affects economic, social, and environmental sustainability across 12 developing countries spanning Latin America, Asia, and Africa over 2005–2020. Using panel data from the World Bank Group Entrepreneurship Survey, Global Entrepreneurship Monitor, and World Development Indicators, we construct composite sustainability indices aligned with the Sustainable Development Goals. Employing fixed‐ and random‐effect models with Driscoll–Kraay robust standard errors to address heteroskedasticity, serial correlation, and cross‐sectional dependence, we uncover a pronounced duality. Informal entrepreneurship contributes positively to economic sustainability by expanding employment opportunities and income generation, particularly in institutionally fragile contexts. However, these economic gains are offset by significant social and environmental costs, including weakened labor protections, limited social inclusion, and heightened environmental degradation. By extending the TBL framework beyond its traditional corporate focus to informal entrepreneurial contexts, this study advances sustainability scholarship and reveals how informality fundamentally reshapes sustainability trade‐offs in developing economies. The findings underscore the need for adaptive, context‐sensitive policy approaches that harness informal entrepreneurship's economic potential while systematically addressing its social and environmental risks through hybrid governance mechanisms, targeted capacity building, and phased formalization pathways.

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