The firm in the informal economy

Abstract:

A defining feature of most developing economies is the vast presence of firms operating in the informal economy. Not only are these firms important drivers of economic growth, but they also provide an important safety net for people living in desperate poverty. However, the lack of formal institutional support and protection constitute serious obstacles for their prosperity and calls into question how informal firms structure their organizations to overcome the inherent challenges of informality. State-of-the-art research on the informal economy has mostly been limited to the study of theoretical contributions or aggregate data due to challenges of collecting firm-level data.Through the collection of rich qualitative and quantitative firm level data in selected industry clusters in Sub-Saharan Africa, this project will pursue two interrelated objectives:1) A long strand of organizational theory suggests firms must structure their organizations in ways that match the external environment to operate effectively. However, this research departs from the existence of the formal firm. In contexts where firms are deprived of formal institutional support, it is not clear how firms organize. I will confront theory with data and explore the ways in which these firms structure their organizations.2) As the costs of bureaucracy and structural forces prevent firms in the informal economy to grow and prosper, our understanding of their performance contingencies is obsolete. I will investigate the relationship between different modes of organizational structure and coordination in the informal economy and a range of financial and non financial performance measures.In sum, this project will strive toward scholarly excellence and impact by introducing the role of organization for firms in the informal economy.