NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Unofficial Economy in Africa

Rafael La Porta, Andrei Shleifer

Chapter in NBER book African Successes, Volume I: Government and Institutions (2016), Sebastian Edwards, Simon Johnson, and David N. Weil, editors (p. 261 - 306)
Published in September 2016 by University of Chicago Press
© 2016 by the National Bureau of Economic Research
in African Successes Project

We examine the productivity of informal firms (those that are not registered with the government) in 24 African countries using field work and World Bank firm level data. We find that productivity jumps sharply if we compare small formal firms to informal firms, and rises rapidly with the size of formal firms. Critically, informal firms appear to be qualitatively different than formal firms: they are smaller in size, produce to order, are run by managers with low human capital, do not have access to external finance, do not advertise their products, and sell to largely informal clients for cash. Informal firms thus occupy a very different market niche than formal firms do, and rarely become formal because there is very little demand for their products from the formal sector.

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This chapter first appeared as NBER working paper w16821, The Unofficial Economy in Africa, Rafael La Porta, Andrei Shleifer
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