The informal sector accounts for a major share of African economies' GDP, employment and firms. Most national surveys of the sector focus on informal employment rather than the structure of informal businesses, with sample designs oriented to small scale individual or household firms. Here, firm‐level data are used, collected on 900 formal and informal businesses in the capitals of Benin, Burkina Faso and Senegal. Data from these surveys, complemented by semi‐structured interviews of major stakeholders in the three cities as well as data from national accounts, document huge enforcement problems, leading to the emergence of large informal actors coexisting with smaller informal businesses. While there is a significant difference in productivity between formal and informal firms, the productivity gap is much smaller for large informal firms than for small informal firms, suggesting that large informal firms have the pre‐requisites to formalize but choose not to do so.

No abstract

No abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

Typescript prepared by Minna Tokkari at UNU-WIDER. UNU-WIDER gratefully acknowledges the financial contributions to the research programme from the governments of Denmark, Finland, Sweden, and the United Kingdom. The World Institute for Development Economics Research (WIDER) was established by the United Nations University (UNU) as its first research and training centre and started work in Helsinki, Finland in 1985. The Institute undertakes applied research and policy analysis on structural changes affecting the developing and transitional economies, provides a forum for the advocacy of policies leading to robust, equitable and environmentally sustainable growth, and promotes capacity strengthening and training in the field of economic and social policy-making. Work is carried out by staff researchers and visiting scholars in Helsinki and through networks of collaborating scholars and institutions around the world.

Abstract:The informal sector makes up an overwhelming share of both gross domestic product and total employment in Africa. In this paper, we lay out some of the basic characteristics of the informal sector in sub-Saharan Africa, relevant institutions, and development issues. Proposed policy approaches recognize both that the great capacity of the informal sector is not easily harnessed into formal systems, and that development is problematic when the bulk of economic activity operates outside of the formal regulatory regime.

Taylor and Francis. It is posted here by agreement between them. Changes resulting from the publishing process-such as editing, corrections, structural formatting, and other quality control mechanisms-may not be reflected in this version of the text.