The phenomenon of the informal economy has attracted the attention of policy-makers and practitioners around the world, accompanied also by a rise in scholarly interest, as best reflected in the growing number of publications in academic outlets of different disciplinary focus. The earlier emphasis on the informal economy as lacking the sustainability and stability in terms of income generation as the basis for coherent economic development strategies (Webb et al, 2009) has been more recently replaced by theoretical approaches that place an emphasis in its links with, and interdependencies on, the formal economy (Chen, 2007; Meagher, 2012); the informally instituted rules often emerging in response to gaps or ‘voids’ in formal institutions that facilitate its operation (Mair et al, 2014; Tejersen and Amoros, 2010); as well as the emancipatory aspects of the informal economy (Lee and Hung, 2014).
Despite increased understanding of how the informal economy operates, the conventional view, especially inherent in macro-economic perspectives, has been that the informal economy provides an alternative but diminished route to economic activity characterised by a ‘subsistence entrepreneurialism’ whose only concern is survival. This has supported the need expressed by policy makers and international organisations alike to strengthen the formal mechanisms and structures that encourage formalisation (ILO, 2009), as a way to support the sustainability and growth of the enterprises operating in
the informal economy.
This view overlooks the contextual and nuanced nature of the informal sector, both in terms of its appeal as well as its constraints, especially for the large groups of women that operate informally in the developing world. Therefore, the aim of this synthesis review is to extend the theoretical approaches to explaining the value of being formal by placing centre-stage the tensions inherent in, and the institutional dynamics affecting, the choices of women in the developing world to operate in the informal sector. The special emphasis on women is justified because fewer numbers of women formalise their businesses (Shinnar et al, 2012; IFC, 2011) and/or have access to formal institutional support mechanisms such as credit or official help (Bardasi et al, 2011; de Bruin et al, 2000). As importantly, women’s enterprise activity is conducted along highly clustered, niche and ‘saturated’ areas, both in terms of spatiality and in terms of economic sector, i.e. low profit services and retail (Grant, 2013; Bardasi et al, 2011; Anna et al, 1999).
In order to contribute to these discussions on the value of formalisation, this review considers of particular interest several inter-related issues and studies that were identified as part of work on an exploratory grant on women entrepreneurs in the informal economy in Nepal: the institutional context; identity and legitimacy; human and social capital; and constraints and preferences.
