The Informal Sector, Productivity, and Enforcement in West Africa: A Firm-level Analysis

Authors


  • The results presented in this paper are from a broader study on informality, the business climate and economic growth in West Africa, funded by the Research Department of the World Bank. We are grateful to several anonymous Bank referees for helpful comments during the design of the project. We also thank very much experts from UEMOA, and the national governments for helpful assistance during the data collection phase. Dominique Haughton provided very helpful assistance during the sample design and data analysis phases. Ibrahima Thione Diop and Birahim Bouna Niang, and Steve Golub also provided useful comments. Of course, the usual disclaimer applies.

Tel: +1-202-473-0189; E-mail: NBenjamin@worldbank.org.

Abstract

The informal sector accounts for a major share of African economies' GDP, employment and firms. Most national surveys of the sector focus on informal employment rather than the structure of informal businesses, with sample designs oriented to small scale individual or household firms. Here, firm-level data are used, collected on 900 formal and informal businesses in the capitals of Benin, Burkina Faso and Senegal. Data from these surveys, complemented by semi-structured interviews of major stakeholders in the three cities as well as data from national accounts, document huge enforcement problems, leading to the emergence of large informal actors coexisting with smaller informal businesses. While there is a significant difference in productivity between formal and informal firms, the productivity gap is much smaller for large informal firms than for small informal firms, suggesting that large informal firms have the pre-requisites to formalize but choose not to do so.

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