The bottom-up power of informal entrepreneurship

Abstract

Interest in the informal sector has a long history in economics (see Gerxhani, 2004 and Schneider and Enste, 2000 for a review of the literature), and is now receiving increasing attention in management (Bruton et al., 2008; Bowen and De Clercq, 2008; and Godfrey, 2012) and in entrepreneurship research (see the special issue of Strategic entrepreneurship Journal, 2014). Traditionally, the informal sector is perceived as an inefficient and potentially negative side of the economy since its operations tend to be characterized by low productivity. Informal activities are also viewed as having negative social dimensions. For example, since workers in the informal sector usually lack the protection of safety nets existing in the formal labor market, they are considered to be exposed to the risk of exploitation. In addition, informality is perceived as producing unfair competition for formal companies, as well as imposing a burden on national finances since it allows for the avoidance of taxes (Schneider and Enste, 2000). Considerations about the opportunity costs of the informal sector are particularly significant when taking into account that, while an informal sector exists in virtually every country, in some of them it accounts for more than half of total GDP (Schneider et al., 2010; ILO, 2011).