A structural econometric analysis of the informal sector heterogeneity

Pierre Nguimkeu

Journal of Development Economics, 2014, vol. 107, issue C, 175-191

Abstract: Understanding the informal sector – that represents about 60–90% of urban employment in developing countries – has a significant importance for any strategy and policy interventions aiming to alleviate poverty and improve welfare. I formulate and estimate a model of entrepreneurial choice to address the heterogeneity in occupations and earnings observed within the informal sector. I test the implications of the model with reduced form and nonparametric techniques, and use a structural econometric approach to empirically identify occupational patterns and earnings using data from the Cameroon informal sector. The empirical validity of the structural estimates is tested and the estimated model is used in counterfactual policy simulations to show how microfinance and business training programs can strengthen the efficiency of the informal sector and substantially improve its earning potential.

Keywords: Occupational choice; Financial constraints; Entrepreneurial skills; Maximum likelihood estimation; Informal economy; Nonparametric estimation; Specification testing (search for similar items in EconPapers)
JEL-codes: C51 C52 C54 O12 O17 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:107:y:2014:i:c:p:175-191

DOI: 10.1016/j.jdeveco.2013.12.001

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