Is Informality Welfare-Enhancing Structural Transformation? Evidence from Uganda

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 State and the Origins of Informal Economic Activity: Insights from Kampala

“…The informal sphere acts as a cushion to absorb this excess labour capacity, making it a key feature of Uganda's structural transformation. Indeed, as a study by the World Bank points out, with high productivity growth and insufficient employment opportunities, the informal sphere allows the country's transition to be more broad-based, contributing to faster growth, less inequality and lower poverty (Fox and Pimhidzai 2011). Without it, a significantly larger share of the country's population would be stuck in low-productivity agriculture, waiting to be absorbed into the formal labour market to participate in the country's narrow growth.…”

The Uganda Poverty Assessment Report 2016

“…Chapters 2 and 5 highlighted the importance of human capital for poverty reduction. In Uganda, education is a key predictor if earnings as well as household consumption (see, for example, Fox and Pimhidzai 2011;and Tsimpo and Wodon 2014a). Apart from its impact on livelihoods, the case for investments in education can also be made on the basis of its impact on health outcomes, among others.…”

Growth, Safety Nets and Poverty: Assessing Progress in Ethiopia from 1996 to 2011

“…However, World Bank (2015) finds that service sector growth is more poverty reducing than growth in other sectors. These alternate findings find support in more micro studies, some of which emphasize growth in household agricultural incomes as a main driver of welfare gains (World Bank 2016b) and others which emphasize the role of rural non-farm growth and the additional income that affords (Fox andPimhidzai 2011, World Bank 2014b).…”