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Sara Tonini - Research Summary

University of Cape Town

Informality in Africa: Institutions and Social Capital

Over the last decades, the informal economy – businesses that are unregistered and unprotected – was at the core of debates in the social sciences. Since the 1970s, when informality started to appear in the literature, many works have been published and different approaches have tried to explain the phenomenon. Despite the recognised importance of the phenomenon in most African countries, empirical studies and economic contributions on the topics are still scarce, and mostly focused on precise aspects of the informal economy or on very specific regions. In particular, the economic literature on informal transactions in developing countries is lacking contributions that simultaneously take into account institutional factors and behavioural hypothesis. Following the three-stage theoretical framework developed by Portes over the years (Portes, 1994; Portes and Haller, 2005; Portes, 2010), i.e. the extent of regulation, enforcement by the polity, and the social capital of the citizens, we can predict that informality is fostered by social relations and interpersonal trust and contained by institutional trust. Regulation and taxation foster informal activities, while effective enforcement prevent them. In order to test these predictions, we use individual-level data from the Afrobarometer for 35 African countries in the years 2011-2013