Supply-Side Economics of a Good Type: Supporting and Expanding South Africa’s Informal Economy

Zaakhir Asmal, Haroon Bhorat, Alexia Lochmann (), Lisa Martin and Kishan Shah
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Alexia Lochmann: Center for International Development at Harvard University
Kishan Shah: Center for International Development at Harvard University

No 228, Growth Lab Working Papers from Harvard's Growth Lab

Abstract: This paper argues that South Africa's persistently high unemployment is in part explained by abnormally low levels of informal sector activity compared to other developing countries. Using cross-country data, it shows that South Africa is an outlier, with low informality and high unemployment relative to its income level. If South Africa had informality rates consistent with its income level, unemployment would be much lower at around 7% instead of over 25%. The paper explores regulatory barriers, spatial constraints, lack of infrastructure, and crime as key factors inhibiting the growth of the informal sector. To boost informal activity and employment, it recommends a firm-size based policy matrix addressing these constraints, with a focus on regulatory changes to expand market access, zero-rating of licensing fees, provision of critical infrastructure like storage facilities, and transport vouchers and subsidies to connect informal businesses to markets. Implementing such supply-side policy changes could demonstrate the employment potential of the informal sector and build momentum for broader deregulation.

Keywords: South Africa; unemployment; spatial inequality (search for similar items in EconPapers)
Date: 2024-04
New Economics Papers: this item is included in nep-iue
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Working Paper: Supply-Side Economics of a Good Type: Supporting and Expanding South Africa’s Informal Economy (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:glh:wpfacu:228

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