Narrow Results

In recent decades, the field of entrepreneurship studies has become increasingly interested in the relationship between entrepreneurship and the informal economy. This paper reviews this burgeoning sub-field of entrepreneurship studies that recognizes how entrepreneurs do not always conduct their business affairs wholly by the rulebook. Evaluating this rapidly growing body of literature, it reviews the findings regarding the preponderance of entrepreneurs to engage in the informal economy, the nature of such informal entrepreneurship, the characteristics of informal entrepreneurs and the motives underpinning participation in such endeavor, along with the competing theories that have sought to explain engagement in this type of entrepreneurship. The tentative finding is that there are marked socio-spatial variations in the prevalence and nature of informal entrepreneurship, the characteristics of informal entrepreneurs and their rationales. The implication is not only that different theorizations of informal entrepreneurship apply more in some populations than others, but also that some populations usually seen as lacking in entrepreneurial spirit are perhaps more enterprising and entrepreneurial than currently recognized. Consequently, legitimizing this hidden enterprise culture could be an important means of promoting enterprise and economic development in such populations. The paper concludes by highlighting future avenues for research on this subject.

This paper presents an empirical study investigating the effect of entrepreneurship on the incidence of informal employment. It builds upon economic models exploring the determinants of informal economy by analyzing the role played by institutions and policies and their effect on the informal sector. Among policies examined are payroll and severance taxes, labor and product market regulations, unemployment benefits, firing and hiring costs, enforcement of financial contracts and financial costs. The empirical analysis is based on a panel data approach. The main result of the paper supports the view that the informal sector is an “unregulated micro-entrepreneurial sector.” The findings suggest that differences in the level of entrepreneurial activities across developing countries are associated with variance in the incidence of informal employment, and that entrepreneurship has a positive effect on the informal sector. The incidence of informal employment is strongly affected by the public perception of government performance, role, accountability and effectiveness, as well as labor market and business regulations.