Business and Economics Journal

The Relevance of Firm-size in the Informal Sector

Abstract

Mohammad Amin

Using newly collected on informal firms in 11 countries in Africa, we explore whether firm-size matters at all for the structure, conduct and performance of the firms. While firm-size is known to be an important attribute of the firms in the formal sector, it is not obvious what the relevance of firm-size is for the informal sector. Informal firms are small, many of them run alone by the owner, and have limited variation in size. Notwithstanding the limited variation in firm-size, our results show that firm-size is highly correlated with a number of firm characteristics such as job growth, labor productivity, gender composition of the workforce and ownership, proclivity to register, access to finance and use of electricity and vehicles. Of course, there are firm characteristics such as perceived benefits from registering, quality of power supply faced by the firms and crime against businesses that show no variation by firmsize. Overall, we conclude that distinction between small and large firms is relevant for the informal sector, at least to an extent that it cannot be neglected by researchers and policy makers.