Analysing the informal economy: Data challenges, research design, and research transparency

Analyses of the informal economy are vital to understanding economic activity in developing countries, but challenges abound when analysing something that is so difficult to measure. In this article, we explore these challenges and what they mean for research and research design in studies of the informal economy. We review key economic theories developed to study the informal economy, before critically discussing the range of methods of data collection available for researchers. All approaches to data collection have limitations, yet many studies fail to reflect adequately on these in their design and presentation. In reviewing data sources for economic analyses of informality, we give particular attention to surveys designed and led by academic researchers, the consideration of which is omitted from leading official organisations' own reports on data collection in the informal economy. In the absence of a unifying theory and data sources that deliver the ‘comprehensive and accurate’ data called for by some authors we argue, first, that no one source of data is intrinsically superior; and second, that research on the informal economy must embrace transparency—around the data used, their alignment with the underlying theory adopted, and the detailed arrangements for data collection and analysis.