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Informality, Ethnicity and Productivity: Evidence from Small Manufacturers in Kenya

Author

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  • Bigsten, Arne

    (Department of Economics, School of Economics and Commercial Law, Göteborg University)

  • Kimuyu, Peter

    (Institute of Policy Analysis & Research, Nairobi, Kenya)

  • Lundvall, Karl

    (Department of Economics, School of Economics and Commercial Law, Göteborg University)

Abstract

A rapidly increasing share of firms in Kenya consists of not only small but also informal establishments. This paper investigates the role of ethnicity and other factors in the choice of formality status at start-up. Differences in productivity, investment and growth across the formality and ethnicity divide are also investigated. The results show that while African-owned firms are more likely to start informally, enterprises owned by either professionals or persons who are older are less likely to start informally. African informal firms are more efficient than African formal firms are, but both categories are less efficient than Asian-owned formal firms are. We conclude that ethnicity is important in explaining choice of formality status, while the network implications of ethnicity account for the differences in firm productivity, investment and growth prospects. It is possible to mainstream informal enterprises by reducing cost related to business registration. However, additional analysis is needed to unpack the ethnic variable en route to developing policy interventions for improving the performance of small scale manufacturing in Kenya.

Suggested Citation

  • Bigsten, Arne & Kimuyu, Peter & Lundvall, Karl, 2000. "Informality, Ethnicity and Productivity: Evidence from Small Manufacturers in Kenya," Working Papers in Economics 27, University of Gothenburg, Department of Economics.
    • Handle: RePEc:hhs:gunwpe:0027
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    References listed on IDEAS

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    1. Fortin, Bernard & Marceau, Nicolas & Savard, Luc, 1997. "Taxation, wage controls and the informal sector," Journal of Public Economics, Elsevier, vol. 66(2), pages 293-312, November.
    2. Marcel Fafchamps, 2001. "Networks, Communities and Markets in Sub‐Saharan Africa: Implications for Firm Growth and Investment," Journal of African Economies, Centre for the Study of African Economies, vol. 10(suppl_2), pages 109-142.
    3. Harriss JC., 1990. "Linkages between the formal and the informal sectors in developing countries: a review of literature," ILO Working Papers 992744903402676, International Labour Organization.
    4. Ranis, Gustav & Stewart, Frances, 1999. "V-Goods and the Role of the Urban Informal Sector in Development," Economic Development and Cultural Change, University of Chicago Press, vol. 47(2), pages 259-288, January.
    5. Arne Bigsten & Paul Collier & Stefan Dercon & Marcel Fafchamps & Bernard Gauthier & Jan Willem Gunning & Abena Oduro & Remco Oostendorp & Catherine Pattillo & Måns Söderbom & Francis Teal & Albert Zeu, 1998. "Contract flexibility and conflict resolution: Evidence from African manufacturing," CSAE Working Paper Series 1998-21, Centre for the Study of African Economies, University of Oxford.
    6. Mead, Donald C. & Morrisson, Christian, 1996. "The informal sector elephant," World Development, Elsevier, vol. 24(10), pages 1611-1619, October.
    7. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-670, May.
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    Cited by:

    1. Alberto Alesina & Eliana La Ferrara, 2003. "Ethnic Diversity and Economic Performance," Harvard Institute of Economic Research Working Papers 2028, Harvard - Institute of Economic Research.
    2. Bigsten, Arne & Durevall, Dick, 2002. "Is Globalisation Good for Africa?," Working Papers in Economics 67, University of Gothenburg, Department of Economics.
    3. Adams, Abass & Cantah, William Godfred & Wiafe, Emmanuel Agyapong, 2014. "Income Insecurity, Job Insecurity and the Drift towards Self-employment in SSA," MPRA Paper 59615, University Library of Munich, Germany.
    4. Lisa D. Cook & Linguère Mously Mbaye & Janet Gerson & Anthony Simpasa, 2021. "Working Paper 358 - The Colonial Origins of Banking Crisis in Africa," Working Paper Series 2484, African Development Bank.
    5. Fenske, James, 2010. "Institutions in African history and development: A review essay," MPRA Paper 23120, University Library of Munich, Germany.

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    More about this item

    Keywords

    informal sector; informality; ethnicity; productivity; manufacturing; Kenya;
    All these keywords.

    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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