The role of the informal sector in investment in Sub-Saharan Africa
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For a long time economic researchers condemned the existence of a huge informal sector in economies, viewing it as a deterrent to investment, growth and development. This view is however being confronted with intense criticism particularly in developing countries where formal unemployment is rapidly growing and poverty widely spreading, which in turn is leading to an expanding informal sector. Thus alternative schools of thought that view the informal sector as a source of livelihood to the unemployed and poor have subsequently been developed. However, not much empirical work has been carried out to validate any of these theoretical claims, particularly in African economies. This paper attempts to fill this gap. The findings of the study indicate that there is a positive relationship between informal sector activities and investment. These results suggest a review of the standard thinking towards the role of the informal sector in development.
KeywordsInformal Investment Employment Incomes
This paper was presented in an international conference organized by ACDC in the University of Cape-Town, South Africa at the ACDC conference held from 9-11th December, 2007 and in the Spill-over Conference in the same place on the 12th December, 2007. The author wishes to acknowledge all the participants at the ACDC, 2007 conference for their very insightful comments that helped in shaping earlier versions of this paper.
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