Political Risk Latin America Blog @PolRiskLatam

Quantifying informality in Latin America

Posted in News and Articles, Political Risk by politicalrisklatam on November 15, 2010

by Mohammad Amin for the Private Sector Development Blog, November 15th, 2010.

In a series of earlier posts, I discussed a number of findings about informal (unregistered) firms in 6 African countries, including Burkina Faso, Cote d’Ivoire, Cape Verde, Cameroon, Madagascar and Mauritius. These findings were based on Informality Surveys collected by the Enterprise Analysis Unit to better understand the functioning of the informal sector—a large sector for which we have virtually no systematic data. Recent estimates suggest that for the world as a whole, between 22.5 and 34.5 percent of all economic activity occurs in the informal economy; for countries in the lowest quartile of GDP per capita, the estimates range between 29 and 57 percent (La Porta and Shleifer, 2008).

The Informality Surveys have now been expanded beyond Africa, covering the Latin American countries of Argentina and Peru. For data junkies like me, this is exciting for at least three reasons. First, comparing Africa and Latin America and the Caribbean (LAC) provides insights into how the structure, conduct and performance of informal businesses vary with the level of economic development. Of course, region-specific factors other than the level of economic development that may affect informal firms will need to be carefully weeded out.

Second, learning from our experience in Africa, the Informality Surveys in Latin America have been better designed to allow for a comparison of informal businesses across more and less developed regions within Argentina and Peru. For this reason, the sample size of the surveys has been greatly increased from the Africa surveys. (continue reading… )

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