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.

The aim of this paper is to evaluate the effectiveness of two contrasting policy approaches in tackling informal sector entrepreneurship. The dominant deterrence approach theorizes entrepreneurs as rational economic actors who operate in the informal sector when the benefits of doing so outweigh the costs. The resultant policy focus is upon deterring participation by increasing the costs of operating in the informal sector through increased penalties and probability of being caught. Recently, a more preventative approach has emerged theorizing entrepreneurs as social actors operating in the informal sector when there is a lack of vertical trust (in government) and horizontal trust (in others). The consequent policy focus is upon improving entrepreneurs’ vertical trust (in the state) and horizontal trust (in each other). To evaluate these approaches, evidence is reported from a 2019 Eurobarometer survey in six East-Central European countries (Czechia, Estonia, Latvia, Lithuania, Poland and Slovakia). The finding is that participation in informal entrepreneurship is not significantly associated with the deterrent measures of raising the penalties and probability of being caught but is significantly associated with the preventative measures of improving vertical and horizontal trust. The implications for theory and policy are discussed.

Informal entrepreneurs have been viewed variously as reluctant participants in such endeavors doing so out of economic necessity because of their exclusion from formal work and welfare (structuralist theory), or as willing entrepreneurs who voluntarily exit the formal economy either as a rational economic decision (neo-liberal theory) or as social actors who do not agree with the formal rules and regulations of the state (neo-institutional theory). The aim of this paper is to evaluate these competing theorizations of entrepreneurs’ motives for participating in the informal sector. Reporting evidence from a 2019 Eurobarometer survey involving 27,565 face-to-face interviews in 28 European countries, the finding is that five percent are reluctant participants, twenty percent are willing participants doing so as a rational economic decision, 21 percent are willing participants doing so because of their disagreement with the rules and 54 percent do so for a mixture of these motives. A logistic regression analysis reveals who is more likely to engage in informal entrepreneurship and who is significantly more likely to do so for each motive. The theoretical and policy implications are then discussed.