NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Unofficial Economy in Africa

Rafael La Porta, Andrei Shleifer

NBER Working Paper No. 16821
Issued in February 2011
NBER Program(s):   POL

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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Document Object Identifier (DOI): 10.3386/w16821

Forthcoming: The Unofficial Economy in Africa, Rafael La Porta, Andrei Shleifer. in African Successes: Government and Institutions, Edwards, Johnson, and Weil. 2014

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