The process of moving closer to the formal economy

Abstract

The informal sector in developing countries is a major impediment to economic development. A considerable literature has been developed with associated policy prescriptions. In developing countries, the informal sector accounts for over 40 percent of the working population and is associated with poor working conditions, unregulated markets and low productivity. The problem appears intractable. Yet, there are cases where actors have successfully moved from the informal sector. The central contribution of this thesis lies in understanding the processes involved in moving economic actors from the informal to formal economy. It focuses on processes that emerge from the informal economy, by considering the motivations the informal actors have to change, how they built new forms of coordination and the new types of assets required to become formal. We researched these processes with secondary sources. First, we identify three areas in which the informal actors had moved closer to formality: informal public transport, waste picking, and the small scale production of coffee. We considered these in three different geographic regions. Our analysis (nine cases, drawn from over 100 publications) to understand the driving factors and regularities that emerged. The analysis was conducted by first developing a framework and guiding criteria in an abductive way. Working iteratively permits us to maintain common criteria among the nine cases while staying flexible enough to illuminate the relevance of the context. Our main findings underline that the processes of formalisation are associated with organisational innovation that allows the formalising actors to connect with a new set of formal consumers. Formalisation does not imply the need to manufacture new goods or provide new services, but to change the way these are produced. The process of becoming formal not only transforms the informal sector but the formal one as well. The informal actors co-developed with other formal organisations ‘levering mechanisms’ that allowed them to enter formal markets and to access ‘bridging assets’, which they require to compete formally. While other studies of the informal economy have discussed the role of assets in the process of formalisation, this research underlines that they are process specific. This thesis has contributed to innovation studies in developing one of the first frameworks that connect it with the informal economy. This contribution brings closer this body of knowledge with processes of development focused on developing countries. Moreover, it contributes to the informal economy literature, as it provides a process perspective that has been scarcely researched when making sense of processes of formalisation. It shows how a group of informal actors can become formal in time, by portraying a distributed process of change in which heterogeneous actors are involved. It permits us to understand that different actors shape the process of formalisation at different points in time.

Date of Award	1 Aug 2020
Original language	English
Awarding Institution	The University of Manchester
Supervisor	Paul Dewick (Supervisor) & Ronald Ramlogan (Supervisor)