Factors and remedies for productivity and efficiency among small‐scale informal enterprises: A theoretical perspective

Abstract

The growth and sustenance of firms are primarily determined by their productivity and efficiency. However, the productivity analysis has generally been skewed toward formal enterprises in the extant literature. For developing countries that characteristically have a greater share of informal employment, understanding the theoretical foundation of informal productivity and the proposed remedies could be the grounds for further research and deeper thinking for enhanced productivity. The central question of this paper is formulated on how a combined theoretical approach on the characteristics and location of firms could enhance knowledge on the hindering and promoting factors of productivity and efficiency among informal enterprises. Using the PRISMA methodology, 141 theoretical and empirical studies were reviewed, which revealed a central role of local and national governments in providing enabling infrastructure for the informal economy. It was found that factors like knowledge sharing, capitalisation, improved credit sector, geographical concentration, and decongestion of industrial clusters could promote productivity among informal producers. It, therefore, falls on various stakeholders to plan and execute policies on infrastructure, land‐use policies, tax, and credit that simultaneously lessen the inherent constraints of informality, while enhancing enablers of production.