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Informal sector heterogeneity and income inequality: Evidence from the Democratic Republic of Congo

Franck M. Adoho () and Djeneba Doumbia ()
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Franck M. Adoho: World Bank, USA

No 447, Working Papers from ECINEQ, Society for the Study of Economic Inequality

Abstract: This paper uses 1-2-3 survey data on the Democratic Republic of Congo to analyze heterogeneity in the informal sector. It empirically identifies three types of entrepreneurs in the sector. The first group of entrepreneurs—top performers—is growth oriented and enjoys greater access to capital. The second group—constrained gazelles—includes entrepreneurs who share many characteristics, especially management skills, with the top performers, but operate with less capital. The third group—survivalists—comprises firms struggling to grow. Based on logit and fixed effect ordinary least squares models, the results show that poverty and income inequality are more common among constrained gazelles and survivalists. The paper also shows that income inequality is explained mainly by educational disparities and lack of credit access among entrepreneurs. Additionally, the outcomes of a Blinder-Oaxaca decomposition show that the performance of firms is a key factor in explaining differences in income. Examining the drivers of performance, the paper finds that human capital and managerial skills are important engines of performance.

Keywords: Informal sector; income inequality; firm performance; Democratic Republic of Congo. (search for similar items in EconPapers)
JEL-codes: D21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dcm, nep-ent, nep-iue and nep-sbm
Date: 2017-10
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Working Paper: Informal sector heterogeneity and income inequality: evidence from the Democratic Republic of Congo (2018) Downloads
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