The Unofficial Economy in Africa / Rafael La Porta, Andrei Shleifer.

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Porta, Rafael La

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w16821.Publication details: Cambridge, Mass. National Bureau of Economic Research 2011.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: We examine the productivity of informal firms (those that are not registered with the government) in 24 African countries using field work and World Bank firm level data. We find that productivity jumps sharply if we compare small formal firms to informal firms, and rises rapidly with the size of formal firms. Critically, informal firms appear to be qualitatively different than formal firms: they are smaller in size, produce to order, are run by managers with low human capital, do not have access to external finance, do not advertise their products, and sell to largely informal clients for cash. Informal firms thus occupy a very different market niche than formal firms do, and rarely become formal because there is very little demand for their products from the formal sector.

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Previous	nber w16819 Fiscal Limits in Advanced Economies /	nber w1682 The Cost of Annuities: Implications for Saving Behavior and Bequests /	nber w16820 The Geography of Crowdfunding /	nber w16821 The Unofficial Economy in Africa /	nber w16822 Personality Psychology and Economics /	nber w16823 The Diversity of Concentrated Prescribing Behavior: An Application to Antipsychotics /	nber w16824 Commodity Price Volatility in the Biofuel Era: An Examination of the Linkage Between Energy and Agricultural Markets /	Next

February 2011.

We examine the productivity of informal firms (those that are not registered with the government) in 24 African countries using field work and World Bank firm level data. We find that productivity jumps sharply if we compare small formal firms to informal firms, and rises rapidly with the size of formal firms. Critically, informal firms appear to be qualitatively different than formal firms: they are smaller in size, produce to order, are run by managers with low human capital, do not have access to external finance, do not advertise their products, and sell to largely informal clients for cash. Informal firms thus occupy a very different market niche than formal firms do, and rarely become formal because there is very little demand for their products from the formal sector.