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4.1 Overview of approaches to the Informal Economy

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Alessio Lupi24 October 2018


As discussed in detail in RNSF, ARS Progetti, Volume 2.1, the approaches to the informal economy are inspired by more than 40 years of research that analysed the concepts of informality with varying degree of success. From a historical perspective, the most influential schools of thought started by W. Arthur Lewis and his optimistic views on the informal economy as a reservoir of labour that should be gradually upgraded and absorbed by the formal sector. As it gradually became clear that the absorption did not fully materialise and that the informal economy was there to stay (and eventually grow), further approaches concentrated on the informal economy per se as a sector in its own right. As summarised in Chen (2012), further schools of thoughts included the dualist approach (ILO, 1972), the structuralist approach (Castells and Portes, 1989), and the legalist approach (H. de Soto, 1986).

In brief:

  1. While the dualist approach looked at the informal economy as a separate marginal economy, de-linked from the formal economy,
  2. The structuralists treated the informal economy as a segment subordinated to the formal economy, and
  3. The legalists understood the informal economy as a rational response by economic units to over-regulation and bureaucracy.

The underlying principles behind the different schools of thoughts inspired approaches used in the framework of (normative) policies that attempt to influence the informal economy in both directions (support or eradication). The following sections provide for an overview of these developments.


4.1.1 Context descriptors

4.1.2 Empirical versus normative approaches to the informal economy

4.1.3 Explicit versus implicit focus on the informal economy

4.1.4 Approaches of some donors and organisations

4.1.5 Conclusions

4.1.6 References


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