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A structural econometric analysis of the informal sector heterogeneity

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  • Nguimkeu, Pierre

Abstract

Understanding the informal sector – that represents about 60–90% of urban employment in developing countries – has a significant importance for any strategy and policy interventions aiming to alleviate poverty and improve welfare. I formulate and estimate a model of entrepreneurial choice to address the heterogeneity in occupations and earnings observed within the informal sector. I test the implications of the model with reduced form and nonparametric techniques, and use a structural econometric approach to empirically identify occupational patterns and earnings using data from the Cameroon informal sector. The empirical validity of the structural estimates is tested and the estimated model is used in counterfactual policy simulations to show how microfinance and business training programs can strengthen the efficiency of the informal sector and substantially improve its earning potential.

Suggested Citation

  • Nguimkeu, Pierre, 2014. "A structural econometric analysis of the informal sector heterogeneity," Journal of Development Economics, Elsevier, vol. 107(C), pages 175-191.
    • Handle: RePEc:eee:deveco:v:107:y:2014:i:c:p:175-191
    DOI: 10.1016/j.jdeveco.2013.12.001
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    Cited by:

    1. Stephanie de Mel, 2020. "A Job Worth Waiting for: Parental Wealth and Youth Unemployment in Ghana," IFS Working Papers W20/21, Institute for Fiscal Studies.
    2. Jean-Philippe Berrou & Francois Combarnous & Thomas Eekhout & Kevin Mellet, 2020. "My mobile, my market: Mobile phone uses and economic performance in the informal sector in Dakar [Mon mobile, mon marché. Usages du téléphone mobile et performances économiques dans le secteur info," Post-Print hal-02506855, HAL.
    3. Sugata Marjit & Suryaprakash Mishra, 2021. "Optimum Size of the Informal Credit Market - A Political Economy Perspective," CESifo Working Paper Series 9252, CESifo.
    4. Philippe Alby & Emmanuelle Auriol & Pierre Nguimkeu, 2020. "Does Social Pressure Hinder Entrepreneurship in Africa? The Forced Mutual Help Hypothesis," Economica, London School of Economics and Political Science, vol. 87(346), pages 299-327, April.
    5. Karaivanov, Alexander & Yindok, Tenzin, 2022. "Involuntary entrepreneurship – Evidence from Thai urban data," World Development, Elsevier, vol. 149(C).
    6. Alina Malkova & Klara Sabirianova Peter & Jan Svejnar, 2021. "Labor Informality and Credit Market Accessibility," Papers 2102.05803, arXiv.org.
    7. Danquah Michael & Schotte Simone & Sen Kunal, 2021. "Informal work in sub-Saharan Africa: Dead end or stepping-stone?," IZA Journal of Development and Migration, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 12(1), pages 1-44, January.
    8. Pongou, Roland & Sidie, Ghislain Junior & Tchuente, Guy & Tondji, Jean-Baptiste, 2022. "Profits, Pandemics, and Lockdown Effectiveness in Nursing Home Networks," GLO Discussion Paper Series 1131, Global Labor Organization (GLO).
    9. World Bank Group, 2018. "Cameroon City Competitiveness Diagnostic," World Bank Publications - Reports 30164, The World Bank Group.
    10. Qing Guo & Siyu Chen & Xiangquan Zeng, 2024. "Digital finance, Bargaining Power and Gender Wage Gap," Papers 2405.15486, arXiv.org.
    11. Dorgyles C. M. Kouakou, 2023. "Competing against ‘invisibles’: the effect of competition from informal firms on formal firms’ R&D," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 13(1), pages 87-117, March.
    12. Pierre Nguimkeu & Cedric Okou, 2021. "Leveraging digital technologies to boost productivity in the informal sector in Sub‐Saharan Africa," Review of Policy Research, Policy Studies Organization, vol. 38(6), pages 707-731, November.
    13. Falco, Paolo & Haywood, Luke, 2016. "Entrepreneurship versus joblessness: Explaining the rise in self-employment," Journal of Development Economics, Elsevier, vol. 118(C), pages 245-265.
    14. Mpendulo Harold Thulare & Inocent Moyo & Sifiso Xulu, 2021. "Systematic Review of Informal Urban Economies," Sustainability, MDPI, vol. 13(20), pages 1-18, October.
    15. Gonzales Martinez, Rolando & D’Espallier, Bert & Mersland, Roy, 2021. "Bifurcations in business profitability: An agent-based simulation of homophily in self-financing groups," Journal of Business Research, Elsevier, vol. 129(C), pages 495-514.
    16. Pierrick Baraton & Florian Léon, 2016. "Financial Constraint, Entrepreneurship and Sectoral Migrations," DEM Discussion Paper Series 16-09, Department of Economics at the University of Luxembourg.
    17. Nguimkeu, Pierre, 2024. "Credit constraints and delayed entrepreneurship," Journal of Economic Behavior & Organization, Elsevier, vol. 224(C), pages 156-180.
    18. Yoonyoung Cho & David Robalino & Samantha Watson, 2016. "Supporting self-employment and small-scale entrepreneurship: potential programs to improve livelihoods for vulnerable workers," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-26, December.
    19. Limin Gao & Sajid Anwar, 2024. "Labour market rigidity and firm innovation," Australian Economic Papers, Wiley Blackwell, vol. 63(2), pages 237-257, June.
    20. Fotié, Andrée Kenne & Mbratana, Taoufiki, 2024. "Informality and development: The nonlinear effect," Economics Letters, Elsevier, vol. 234(C).
    21. Pierre Nguimkeu, 2016. "Some effects of business environment on retail firms," Applied Economics, Taylor & Francis Journals, vol. 48(18), pages 1647-1654, April.
    22. M. Arouri & A. Ben Youssef & Ceyhun Elgin, 2014. "Informal economy in Africa: Building human capital to set the Gazelles free," Working Papers 2014/04, Bogazici University, Department of Economics.
    23. repec:zib:zbmbmj:v:1:y:2022:i:2:p:92-98 is not listed on IDEAS
    24. Deng, Quheng & Ma, Xinxin, 2018. "The Dynamics of Informal Employment in Urban China," CEI Working Paper Series 2018-3, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.

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    More about this item

    Keywords

    Occupational choice; Financial constraints; Entrepreneurial skills; Maximum likelihood estimation; Informal economy; Nonparametric estimation; Specification testing;
    All these keywords.

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling

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