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Formalizing the Informal Sector: Barriers and Costs

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  • Ricardo A. Lagos

Abstract

This article uses material from a series of case studies conducted in Latin America to analyse various aspects of the formalization of the informal sector. In particular, it examines the legal and bureaucratic barriers confronting informal sector micro‐enterprises which seek to become part of the formal, legal circuit, and assesses the costs in time and money which are involved in the formalization process. The process itself is seen as consisting of two elements — achieving legality and retaining that status over time — each of which involves certain bureaucratic and financial demands. While recognizing that the requirements for formalization can represent a burden in some cases, the main finding of the article is that the procedures and related costs vary between countries to such a degree that it is impossible to claim, as some earlier studies have done, that disproportionate regulation and bureaucracy constitute an insurmountable obstacle to the legalization of informal sector enterprises.

Suggested Citation

  • Ricardo A. Lagos, 1995. "Formalizing the Informal Sector: Barriers and Costs," Development and Change, International Institute of Social Studies, vol. 26(1), pages 111-131, January.
    • Handle: RePEc:bla:devchg:v:26:y:1995:i:1:p:111-131
    DOI: 10.1111/j.1467-7660.1995.tb00545.x
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    References listed on IDEAS

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    1. Sethuraman, S. V.,, 1976. "Urban informal sector : concept, measurement and policy," ILO Working Papers 991667413402676, International Labour Organization.
    2. Tokman, Victor E., 1989. "Policies for a heterogeneous informal sector in Latin America," World Development, Elsevier, vol. 17(7), pages 1067-1076, July.
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    Cited by:

    1. Colin C. Williams, 2023. "A Modern Guide to the Informal Economy," Books, Edward Elgar Publishing, number 18668.
    2. Hirons, M. & McDermott, C. & Asare, R. & Morel, A. & Robinson, E. & Mason, J. & Boyd, E. & Malhi, Y. & Norris, K, 2018. "Illegality and inequity in Ghana’s cocoa-forest landscape: How formalization can undermine farmers control and benefits from trees on their farms," Land Use Policy, Elsevier, vol. 76(C), pages 405-413.
    3. Jain, Varinder, 2020. "Vulnerability Exposure in Informal Manufacturing Sector A Reflection on Conceptual and Analytical Issues," MPRA Paper 103158, University Library of Munich, Germany.
    4. Colin C. Williams & Youssef Youssef, 2014. "Is Informal Sector Entrepreneurship Necessity- or Opportunity-driven? Some Lessons from Urban Brazil," Business and Management Research, Business and Management Research, Sciedu Press, vol. 3(1), pages 41-53, March.
    5. Colin C. Williams, 2006. "Beyond Market‐Oriented Readings of Paid Informal Work," American Journal of Economics and Sociology, Wiley Blackwell, vol. 65(2), pages 383-406, April.
    6. Norma Juma & Joy Olabisi & Eliada Griffin-EL, 2022. "Understanding the Motivation Complexity of Grassroots Ecopreneurs at the Base of the Pyramid," Sustainability, MDPI, vol. 14(21), pages 1-21, October.

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