Informal Economy Thrives in Cities

Alessandra Delgado | May 06, 2008

For many poor people in urban areas, the primary means of economic survival is the production or sale of goods or services through semi-legal or illegal ventures, known as the informal economy.1 Conservatively, informal employment accounts for half to three quarters of all nonagricultural employment in developing countries: 48 percent in North Africa, 51 percent in Latin America, 65 percent in Asia, and 72 percent in sub-Saharan Africa.2

In the 13 principal metropolitan areas of Bogotá, Colombia, 58.5 percent of workers are classified as informal.3 In Bolivia, the informal sector provides an estimated two thirds of the gross domestic product (GDP), and in Peru the figure is 58 percent.4 Because of the sheer number of workers, clients, budgets, and trans­ac­tions involved in informal markets, legality is marginal; informality is the norm.5

The greatest increase in the informal economy since 1990 has occurred in sub-Saharan Africa, Latin America, and Central Asia—often accounting for more than 50 percent of GDP.6 (See Figure 1.) The last few years have seen a continuation of this trend, with Africa and Latin America having the highest levels of informality.7 In contrast, in Europe the growth of informality is slowing and even declining in the wake of extensive microeconomic reforms, while in East Asia, where firms face smaller regulatory and tax burdens, the informal economy remains stable at fairly low levels.8

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