Explaining Cross-National Variations in the Prevalence of Informal Sector Entrepreneurship: Lessons From a Survey of 142 Countries

Abstract

The aim of this paper is to evaluate four competing theoretical perspectives that explain cross-national variations in the level of informal sector entrepreneurship. Scholarship has until now argued that informal entrepreneurship is a result of either: economic under-development and a lack of modernization of governance (modernization theory); high taxes and state over-interference (neo-liberal theory); inadequate state intervention to protect workers from poverty (political economy theory) or the asymmetry between the laws and regulations of formal institutions and the unwritten socially shared rules of informal institutions (institutional theory). Reporting the World Bank Enterprise Survey (WBES) on the varying prevalence of informal entrepreneurship across 142 countries, the finding is that neo-liberal theory is refuted but the tenets of the modernization, political economy and institutional theories are confirmed. Informal entrepreneurship is found to be significantly higher when there is economic under-development, a lack of modernization of governance, inadequate state intervention to protect workers from poverty and greater asymmetry between the formal and informal institutions. The paper concludes by discussing the theoretical and policy implications of these findings.

Explaining Variations in the Commonality of Informal Sector Competition Across Latin American and the Caribbean Countries

“…One exception is a study of whether formal businesses started-up unregistered , but this does not analyze the reasons for the cross-country variations. Williams and Kedir (2018a) do so and reveal the importance of the modernization, political economy and institutional theories in explaining cross-country variations. Meanwhile, the WBES data on whether formal sector enterprises witness informal sector competition has been subject to little or no analysis.…”

“…Studies evaluating the varying level informal sector competition across countries have so far been confined to a study of 142 countries, which again reveals the same finding that modernization, political economy and institutional theories apply but not neoliberal theory (Williams and Kedir, 2018a) and a study of three South-Eastern European countries, which shows that informal sector competition leads to poorer firm performance (Williams and Bezeredi, 2018b). To further advance understanding of the prevalence of informal sector competition, this paper focuses on Latin America and the Caribbean countries to evaluate which, if any, of these theories are valid in this global region.…”

Intersections between policy and institutions: a focus on enterprise growth in Swaziland

“…Policy is widely used for fostering entrepreneurship (Williams and Kedir, 2018; Wright et al , 2015), particularly as enterprises are embedded in country-specific institutional arrangements where an enabling environment can play a major role (Busenitz et al , 2000; Valliere, 2010; Welter and Smallbone, 2011; Wright et al , 2015; Wright and Stigliani, 2012). Public policy supported by effective institutions is one of the key strategies for promoting entrepreneurial activities (Walter and Block, 2016), which in turn can act as a tool for addressing severe macro-economic problems that plague many developing countries, particularly in Africa where high levels of unemployment and poverty are prevalent (Brixiová et al , 2014).…”

“…Moreover the study is important in that it broaches the subject of enterprise growth within the Swazi context, which is not only an under-researched topic but where traditionally entrepreneurship and SMMEs have been viewed predominantly from a survivalist perspective (MEE, 2004; Urban, 2015). More recently however, entrepreneurship has been viewed as encompassing transformational change that may extend to social or institutional spheres (Urban, 2019), and where the informal sector is increasingly recognised in terms of its entrepreneurial potential, as SMMEs in many developing and emerging markets are at the epicentre of the economy (Armanios et al , 2017; Williams and Kedir, 2018).…”

Evaluating policy approaches for tackling informal entrepreneurship

“…Therefore, the aim of this paper is to evaluate the effectiveness of these two competing approaches for reducing informal entrepreneurship. Previous studies on informal entrepreneurship have focussed only on unregistered businesses and the prevalence of such enterprises (Chepurenko, 2016; London et al , 2014; Williams et al , 2016) or on whether entrepreneurs report competing against unregistered or informal enterprises (Ali and Najman, 2018; Williams and Horodnic, 2017a; Williams and Kedir, 2018). However, these studies do not take into account that formal businesses employ informal practices.…”