Kiel Working Papers, Kiel Institute for World Economics
No 1751:
Informal-formal Linkages and Informal Enterprise Performance in Urban West Africa
Rainer Thiele Marcus Böhme
Abstract: Employing a unique dataset that covers almost 6000
informal enterprises from six West African urban centers, this paper
examines the backward and forward linkages of these enterprises to the
formal sector. We first provide a descriptive analysis of the existing
formal-informal linkages. It turns out that formal backward linkages are
much more prevalent than formal forward linkages, and that linkages vary
with the degree of informality, occurring less frequently if firms have no
ties to the formal sector at all or low capital stocks. In the second step,
we employ a Probit approach to identify major factors associated with the
observed backward linkages. The Probit analysis corroborates the importance
of the degree of informality for the existence of linkages and shows
various enterprise characteristics to be significant determinants as well.
Finally, we analyze whether backward linkages matter for enterprise
performance using both OLS and IV estimations. We find a positive and
robust impact of backward linkages, whereas the degree of informality of
the enterprises in our sample seems to affect firm performance only
indirectly through their linkages to the formal sector
Keywords: Informal sector, formal-informal linkages, enterprise performance, West Africa; (follow links to similar papers)
JEL-Codes: D22,; D40,; O17; (follow links to similar papers)
24 pages, January 2012
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