Informality, Harassment, and Corruption: Evidence from Informal Enterprise Data from Harare, Zimbabwe

Abstract

New representative survey data for Harare, Zimbabwe are used to analyze the conditions under which informal businesses encounter requests for bribes. A simple model develops basic expectations of bribe exposure: those with higher opportunity costs of formalizing and with a higher ability to pay (resources) are expected to face a higher bribe risk. Empirical results find that informal businesses operating out of necessity are likelier to have a bribe demanded of them. Robustness checks are performed to account for the endogeneity of the main regressors, through a bivariate probit specification, using an instrumental variable of whether an informal business owner started in the area of activity before the country's 2009 dollarization. Limited significant results are found for the effect of revenues (ability to pay).

Understanding Informality: Comprehensive Business-Level Data and Descriptive Findings

“…Because of their legal status, informal businesses face unique challenges to their operations. Their legal precariousness makes them particularly vulnerable to extortion by government officials (Francis, 2019;Dube and Casale, 2016). Nevertheless, very few of the businesses (around 10%) report being harassed by authorities in the three months prior to the interview.…”

“…(4) Informal businesses frequently operate from within households, more so than their formal counterparts, with limited exposure to harassment or crime (in contrast with Francis, 2019;Dube and Casale, 2016), perhaps due to their choices of location and activities.…”