The European Journal of Development Research

, Volume 26, Issue 4, pp 473–489 | Cite as

Informal–Formal Linkages and Informal Enterprise Performance in Urban West Africa

  • Marcus H Böhme
  • Rainer Thiele
Original Article

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.

Keywords

informal sector formal-informal linkage backward and forward linkages enterprise performance West Africa 

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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Copyright information

© European Association of Development Research and Training Institutes 2014

Authors and Affiliations

  • Marcus H Böhme
    • 1
  • Rainer Thiele
    • 1
  1. 1.Kiel Institute for the World EconomyKielGermany

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