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Supply-Side Economics of a Good Type: Supporting and Expanding South Africa’s Informal Economy

Author

Listed:
  • Zaakhir Asmal
  • Haroon Bhorat
  • Alexia Lochmann

    (Center for International Development at Harvard University)

  • Lisa Martin
  • Kishan Shah

    (Center for International Development at Harvard University)

Abstract

This paper argues that South Africa's persistently high unemployment is in part explained by abnormally low levels of informal sector activity compared to other developing countries. Using cross-country data, it shows that South Africa is an outlier, with low informality and high unemployment relative to its income level. If South Africa had informality rates consistent with its income level, unemployment would be much lower at around 7% instead of over 25%. The paper explores regulatory barriers, spatial constraints, lack of infrastructure, and crime as key factors inhibiting the growth of the informal sector. To boost informal activity and employment, it recommends a firm-size based policy matrix addressing these constraints, with a focus on regulatory changes to expand market access, zero-rating of licensing fees, provision of critical infrastructure like storage facilities, and transport vouchers and subsidies to connect informal businesses to markets. Implementing such supply-side policy changes could demonstrate the employment potential of the informal sector and build momentum for broader deregulation.

Suggested Citation

  • Zaakhir Asmal & Haroon Bhorat & Alexia Lochmann & Lisa Martin & Kishan Shah, 2024. "Supply-Side Economics of a Good Type: Supporting and Expanding South Africa’s Informal Economy," Growth Lab Working Papers 228, Harvard's Growth Lab.
  • Handle: RePEc:glh:wpfacu:228
    as

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    File URL: https://growthlab.hks.harvard.edu/sites/projects.iq.harvard.edu/files/2024-04-wp-158-supply-side-economics-south-africa_0.pdf
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    References listed on IDEAS

    as
    1. Abhijit Banerjee & Sebastian Galiani & Jim Levinsohn & Zoë McLaren & Ingrid Woolard, 2008. "Why has unemployment risen in the New South Africa?1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 16(4), pages 715-740, October.
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    3. Rafael La Porta & Andrei Shleifer, 2014. "Informality and Development," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 109-126, Summer.
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    5. repec:cep:stieop:43 is not listed on IDEAS
    6. Jeremy R. Magruder, 2012. "High Unemployment Yet Few Small Firms: The Role of Centralized Bargaining in South Africa," American Economic Journal: Applied Economics, American Economic Association, vol. 4(3), pages 138-166, July.
    7. Grabrucker, Katharina & Grimm, Michael, 2018. "Does crime deter South Africans from self-employment?," Journal of Comparative Economics, Elsevier, vol. 46(2), pages 413-435.
    8. Alexia Lochmann, 2022. "Diagnosing Drivers of Spatial Exclusion: Places, People, and Policies in South Africa’s Former Homelands," CID Working Papers 140a, Center for International Development at Harvard University.
    9. Haroon Bhorat & Zaakhir Asmal & Kezia Lilenstein & Kirsten van der Zee, 2018. "SMMES in South Africa: Understanding the Constraints on Growth and Performance," Working Papers 201802, University of Cape Town, Development Policy Research Unit.
    Full references (including those not matched with items on IDEAS)

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