Wht is the informal economy?
from Maria Alejandra Madi and the WEA Pedagogy Blog
The conceptualization of the informal economy focuses on some features of the business dynamics and employment conditions. That is why the definition includes not only enterprises that are not legally regulated, but also employment relations that are unregulated and unprotected, that is to say, employment without any kind of social protection.
In most of the developing countries, the small businesses’ challenges have contributed to the expansion of the informal economy. Small and micro-entrepreneurs are usually subject to complex regulatory barriers. Besides, the access to credit is restricted. As a result, micro and small enterprises reveal poor performance in competitive environments, a lower capacity for innovation and a weak international orientation. Among other obstacles to survival and expansion in the formal economy, the costs of starting up a formal enterprise are outstanding in developing countries. Among these transaction costs, we can highlight: i) the number of procedures that includes all necessary licenses and permits and completion of any notifications, verifications or registrations required by the relevant authorities; and ii) business legislation, specific regulations and fee schedules that are used as sources for start-up cost calculation. read more