Synthesis documents

Cape Town Conference: Business Environment and Informality, 2010 (J. Daly and M. Spence, Day 2, Afternoon Session)

    This paper argues that business environment reforms are a necessary but insufficient condition to reduce informality and promote more equitable economic growth. Instead of relying on wholly economistic and/or legalistic approaches, the authors argue for greater attention to local political economy considerations.

    The authors, Jorge Daly and Melvin Spence, first outline the evolution of business environment reform (BER) as a discipline, before questioning elements of the contemporary approach to BER. Daly and Spence note that the formal economy depends on adequate government institutions to regulate markets. Where, for historical and political reasons, such government institutions elicit deep distrust among citizens, formal markets cannot be assumed to functionally efficiently and to the equal benefit of all. Furthermore, the authors cite recent evidence from Indonesia and Peru to argue that it is neither state intervention, nor the cost of registration that typically forces businesses into the informal economy, but a lack of perceived advantages from participation in formal markets.

    The paper also stresses that practitioners should take social exclusion explicitly into account when designing business environment reforms. In El Salvador, for example, reforms that made a land registry financially sustainable are said to have simultaneously made registration unaffordable for a large proportion of landowners.

    Associated Activities and Documents
    Synthesis documents
    »Donor Committee Conference: Business Environment Reform and the Informal Economy, Cape Town, South Africa, 12-15 April 2010