Abstract
Employing a unique data set that covers almost 6000 informal enterprises from six West African urban centres, this article examines the backward and forward linkages of these enterprises to the formal sector. Our descriptive analysis shows that formal backward linkages are much more prevalent than formal forward linkages, and that linkages vary with the degree of informality, occurring less frequently if firms have no ties to the formal sector at all or low-capital stocks. Further econometric analysis corroborates the importance of the degree of informality for the existence of linkages and shows various enterprise characteristics to be significant determinants. Finally, we analyse whether backward linkages matter for enterprise performance using both ordinary least squares (OLS) and instrumental variable (IV) estimations. We find a positive and robust impact of backward linkages, whereas the degree of informality of the enterprises in our sample seems to affect firm performance only indirectly through their linkages to the formal sector.
Abstract
Cet article utilise une base de données unique regroupant presque 6000 entreprises informelles dans six agglomérations urbaines d’Afrique de l’Ouest, et se penche sur les liens entre ces entreprises et le secteur formel, en amont et en aval. Notre analyse descriptive montre que les liens formels en amont sont beaucoup plus fréquents que les liens en aval, et que ces liens ont un degré d’informalité qui varie. Ils sont moins fréquents si les entreprises n’ont aucun contact avec le secteur formel, ou si elles ont un capital bas. Une analyse économétrique plus poussée confirme l’importance du degré d’informalité dans l’existance des liens et montre que diverses caractéristiques des entreprises sont des déterminants clés. Enfin, nous analysons l’impact des liens en amont sur la performance de l’entreprise, selon des estimations utilisant la méthode des moindres carrés et des variables instrumentales. Nous trouvons que les liens en amont ont une forte influence positive, alors que le degré d’informalité des entreprises dans notre échantillon ne semble affecter la performance des entreprises qu’indirectement, à travers leurs liens avec le secteur formel.
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Notes
Note that while these production units are not registered with the tax administration, they still count as informal enterprises because they do not have written formal accounts. Furthermore, production units are defined as registered enterprises if they have at least one official link to the government. In a robustness test, we also account for the number of links by constructing an index based on a Principal Component Analysis.
Using unregistered low‐capital enterprises as a comparison group, almost all indicators in the three other groups are significantly different at the 1 per cent level. We therefore do not report these tests.
In a case study for Nigeria, Arimah (2001) shows that subcontracting accounts for a substantial share of existing forward linkages.
Since consumptive linkages, that is, final demand, allow no formal–informal categorization we exclude them from the analysis in the following sections.
Since results for the registration index and the informality dummies point in the same direction in all subsequent regressions, we no longer report the former.
Since these shares are not weighted by any measure of size of the enterprise, the calculated shares are not representative point estimates. Nevertheless, they do represent the relative size of the informal sector in each city.
Our overall results are not affected by this choice as they point in the same direction under a local average treatment approach. The results of the local average treatment regressions are available from the authors upon request.
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Böhme, M., Thiele, R. Informal–Formal Linkages and Informal Enterprise Performance in Urban West Africa. Eur J Dev Res 26, 473–489 (2014). https://doi.org/10.1057/ejdr.2014.26
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DOI: https://doi.org/10.1057/ejdr.2014.26