This thesis aims to narrow the research gap on informal enterprises, contributing to both the academic and policy debates. It provides empirical evidence related to two key questions: how much potential do informal firms have to contribute to economic growth, and employment creation? And, if that potential exists; what constrains prevent informal entrepreneurs from reaching their full potential? The results on marginal returns to capital in Chapter 1 and on employment growth in Chapter 3 indicate that the potential of informal enterprises may be substantial, if constraints to growth can be overcome. Chapters 1, 2 and 3 provide new evidence on the specific constraints facing informal entrepreneurs. The chapters focus respectively on: monetary entry barriers, inefficient allocation of inputs by gender and lack of access to international markets. The final chapter examines the impact of changes in the firm distribution – influenced heavily by the success or failure of small, largely informal firms – on wage inequality, a variable of significant policy interest. This illustrates some of the implications of the existence and expansion of informal enterprises for the overall economy.
