Kiel Working Papers, Kiel Institute for World Economics
No 1683:
Is the Informal Sector Constrained from the Demand Side? Evidence for Six West African Capitals
Marcus Böhme and Rainer Thiele
Abstract: Employing a unique dataset that covers households from six
West African capitals, this paper provides new evidence on the demand for
informal sector products and services. We first investigate whether demand
linkages exist between formal and informal products and distribution
channels, and whether there is an overlapping customer base, which would
imply that both formal sector wage earners and informal workers buy both
formal and informal products using both formal and informal distribution
channels. In a second step, we estimate demand elasticities based on Engel
curves. We find a strongly overlapping customer base and strong demand-side
linkages between the formal and informal sector, with the exception that
informal goods are hardly bought through formal distribution channels. The
estimated demand elasticities tend to show that rising incomes are
associated with a lower propensity to consume informal sector goods and to
use informal distribution channels. We therefore conclude that the informal
sector in West Africa is likely to be constrained from the demand side
Keywords: Informal sector; formal-informal linkages; Engel curve estimates; West Africa; (follow links to similar papers)
JEL-Codes: D12,; O17; (follow links to similar papers)
29 pages, February 2011
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