Spatial Inequality and Informality in Kenya’s Firm Network

Verena Christina Wiedemann, Benard K. Kirui, Vatsal Khandelwal and Peter W. Chacha

No 10932, Policy Research Working Paper Series from The World Bank

Abstract: The spatial configuration of domestic supply chains plays a crucial role in the transmission of shocks. This paper investigates the representativeness of formal sector firm-to-firm trade data in capturing domestic trade patterns in Kenya, a context with high informality. It documents stylized facts showing that formal sector trade exhibits a distinct spatial concentration relative to overall economic activity. Linking transaction-level data with data on informal economic activity, the paper estimates a structural model and predict a revised network incorporating informal firms. Findings show that formal sector trade flows underaccount for trade within regions and across regions with stronger social ties. The higher the incidence of informality, the more one underestimates vulnerability to domestic shocks and overestimates exposure to import shocks.

Date: 2024-09-30
New Economics Papers: this item is included in nep-geo, nep-iue, nep-net and nep-ure
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