The importance of the business environment for the informal economy: Evidence from the Doing Business ranking

Creating a business environment favorable for the installation and growth of companies is fundamental for poverty eradication. The informal economy creates precarious working conditions, which creates difficulties in job stability and increases the risk of abuse that is incompatible with decent work and rights. Therefore, the informal economy can be an obstacle to sustainable economic growth. However, in less robust economic environments, the informal economy is the only means of subsistence for many families. This study uses data from the Doing Business ranking and the International Labor Organization to assess how the variables associated with the business environment are related to informality. The study focused on a sample of African countries and used the fsQCA method. The results demonstrated several possible alternatives for reducing informality. They highlighted a solution based on improving the state's functioning efficiency, a solution with a preponderance of market efficiency factors, and two solutions that combine improving credit access, the tax system, and investor protection. However, it was also observed that in high informality economies, there are always difficulties in accessing credit, an ineffective tax system, little protection for investors, and a deficient licensing system.