Formal-Informal economy linkages: Some conceptual and empirical issuesby VALODIA, I, DEVEY, R, DLAMINI, N & LEBANI, L, 2006
Research Report, Employment Growth & Development Initiative, Human Sciences Research Council
This report contributes to a larger project on the competitive behaviour of informal firms in a growing economy. Valodia et al explore the idea of a ‘second economy’. Notwithstanding the conceptual problems associated with the idea of a second economy, its prominence in public policy debates offers a unique space to enhance the linkages between the formal and informal economies. The paper demonstrates that there is a close relationship between the first and second economies. It argues that government policy for the second economy is either absent or piecemeal and ineffective. The paper aims to develop a framework for enhancing the linkages between the first and second economy. It begins by providing a conceptual schema for understanding the possible linkages, before moving on to empirical validation. It examines how the national accounts deal with the informal economy, and then examines linkages between employment in the formal and the informal economies.