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Is the Informal Sector Constrained from the Demand Side? Evidence for Six West African Capitals

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  • Thiele, Rainer
  • Böhme, Marcus
Abstract
Employing a unique dataset that covers households from six West African capitals, this paper provides new evidence on the demand for informal sector products and services. We first investigate whether demand linkages exist between formal and informal products and distribution channels, and whether there is an overlapping customer base, which would imply that both formal sector wage earners and informal workers buy both formal and informal products using both formal and informal distribution channels. In a second step, we estimate demand elasticities based on Engel curves. We find a strongly overlapping customer base and strong demand-side linkages between the formal and informal sector, with the exception that informal goods are hardly bought through formal distribution channels. The estimated demand elasticities tend to show that rising incomes are associated with a lower propensity to consume informal sector goods and to use informal distribution channels. We therefore conclude that the informal sector in West Africa is likely to be constrained from the demand side.

Suggested Citation

  • Thiele, Rainer & Böhme, Marcus, 2011. "Is the Informal Sector Constrained from the Demand Side? Evidence for Six West African Capitals," Open Access Publications from Kiel Institute for the World Economy 48307, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkie:48307
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    Cited by:

    1. Nesma Mohamed Ali, 2017. "Towards a better integration of the informal sector: three empirical essays on the interaction between formal and informal firms in Egypt and beyond," Erudite Ph.D Dissertations, Erudite, number ph17-05 edited by Manon Domingues Dos Santos & Boris Najman.
    2. Oo, Alex & Toth, Russell, 2014. "Do community-sanctioned social pressures constrain microenterprise growth? Evidence from a framed field experiment," Journal of the Japanese and International Economies, Elsevier, vol. 33(C), pages 75-95.
    3. Marcus H Böhme & Rainer Thiele, 2014. "Informal–Formal Linkages and Informal Enterprise Performance in Urban West Africa," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 26(4), pages 473-489, September.
    4. Aalia Cassim & Kezia Lilenstein & Morne Oosthuizen & Francois Steenkamp, 2016. "Informality and Inclusive Growth in Sub-Saharan Africa," Working Papers 201602, University of Cape Town, Development Policy Research Unit.
    5. Florence Arestoff & Jean-François Jacques, 2016. "Politiques éducatives et évasion fiscale dans les pays en développement," Revue d'économie politique, Dalloz, vol. 126(6), pages 1057-1075.
    6. Ahmadou Aly Mbaye & Nancy Benjamin & Stephen Golub & Jean-Jacques Ekomie, 2014. "The Urban Informal Sector in Francophone Africa: Large Versus Small Enterprises in Benin, Burkina Faso and Senegal," Working Papers 201405, University of Cape Town, Development Policy Research Unit.
    7. Distinguin, Isabelle & Rugemintwari, Clovis & Tacneng, Ruth, 2016. "Can Informal Firms Hurt Registered SMEs’ Access to Credit?," World Development, Elsevier, vol. 84(C), pages 18-40.
    8. Stephen S. Golub & Janet Ceglowski & Ahmadou Aly Mbaye & Varun Prasad, 2018. "Can Africa compete with China in manufacturing? The role of relative unit labour costs," The World Economy, Wiley Blackwell, vol. 41(6), pages 1508-1528, June.
    9. Ghani, Ejaz & O'Connell, Stephen D. & Sharma, Gunjan, 2013. "Friend or foe or family ? a tale of formal and informal plants in India," Policy Research Working Paper Series 6588, The World Bank.
    10. Ngotran, Duong & Ngo, Tien, 2013. "Retail Sector and Economic Development," MPRA Paper 61590, University Library of Munich, Germany, revised Aug 2014.
    11. Michiel Gerritse & Ana Isabel Moreno-Monroy, 2012. "Informal Sector and Manufacturing Location: In Search of the Missing Links," Spatial Economic Analysis, Taylor & Francis Journals, vol. 7(2), pages 179-201, June.
    12. 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.
    13. Radchenko, Natalia, 2014. "Heterogeneity in Informal Salaried Employment: Evidence from the Egyptian Labor Market Survey," World Development, Elsevier, vol. 62(C), pages 169-188.

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    More about this item

    Keywords

    Informal sector; formal-informal linkages; Engel curve estimates; West Africa;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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