Entrepreneurship and the Informal Economy: An Overview

Abstract

In recent decades, the field of entrepreneurship studies has become increasingly interested in the relationship between entrepreneurship and the informal economy. This paper reviews this burgeoning sub-field of entrepreneurship studies that recognizes how entrepreneurs do not always conduct their business affairs wholly by the rulebook. Evaluating this rapidly growing body of literature, it reviews the findings regarding the preponderance of entrepreneurs to engage in the informal economy, the nature of such informal entrepreneurship, the characteristics of informal entrepreneurs and the motives underpinning participation in such endeavor, along with the competing theories that have sought to explain engagement in this type of entrepreneurship. The tentative finding is that there are marked socio-spatial variations in the prevalence and nature of informal entrepreneurship, the characteristics of informal entrepreneurs and their rationales. The implication is not only that different theorizations of informal entrepreneurship apply more in some populations than others but also that some populations usually seen as lacking in entrepreneurial spirit are perhaps more enterprising and entrepreneurial than currently recognized and consequently, that legitimizing this hidden enterprise culture could be an important means of promoting enterprise and economic development in such populations. The paper concludes by highlighting future avenues for research on this subject.

Keywords: informal economy, development economics, entrepreneurship, enterprise culture, informal entrepreneurship, informal economy

JEL Classification: O17, H26, H31, K42