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The firm in the informal economy

The Carlsberg Foundation’s Distinguished Associate Professor Fellowships

What

A defining feature of most developing economies is the vast presence of informal economies where unregistered and unregulated organisational entities operate without the support or protection of established formal institutions. Not only are these firms important drivers of economic growth, but they also provide an important safety net for people living in desperate poverty. However, the lack of formal institutional support and protection calls into question how these firms operate. This project seeks to understand the means and consequences of how informal firms in industry clusters in Sub-Saharan Africa structure their organisations. As such, it seeks a new agenda on how we understand the behaviour of informal economy actors.

Why

As informal economy firms are important drivers of economic growth and hence social and economic well-being, studying their structures and performance are of high scientific interest. However, a key challenge of studying the informal economy has been empirical. As my research group and I will embark on an extensive empirical investigation of how firms in the informal economy structure their organisations, this project will develop theory that will be instrumental for future research seeking to understand the nature, processes and outcomes firm behavior in the informal economy.

How

A core feature of this project be the establishment of a research group that will collect both qualitative and quantitative data across selected industry clusters in different Sub-Saharan African countries where the share of the informal economy is higher than in any other region in the world. Moreover, using a novel interdisciplinary approach, the project will draw on research in development economics to understand the existence of the informal economy, and research in organisational economics to understanding the resources and organisational levers disposable to firms. The two fields will therefore hold important complementary views to understand firm behaviour in the informal economy.

SSR

The informal economy constitutes the lion's share of many developing countries' economies. Thus, the knowledge generated through this project will carry important implications for official development policies directed toward private sector development. For example, the International Labor Organization's 'Decent Work' campaign has a dedicated focus on the working conditions of people in the informal economy. In its 'Migration, Mobility and Employment' strategy, the Africa-EU Partnership actively seeks to convert businesses from the informal to formal sectors. Therefore, the knowledge disseminating from this project can actively be applied in local and international policy formulation and implementation directed towards improving the working conditions for workers in the informal economy.