Informality in the Process of Development and Growth
June 7, 2016Theme: Competitiveness and Productivity

“Informality” is a term used to describe the collection of firms, workers, and activities that operate outside the legal and regulatory systems. It is widespread in the majority of developing countries—in a typical developing economy, the informal sector produces about 35 percent of GDP and employs 75 percent of the labor force. Informality is one of the most difficult challenges facing developing countries, and not surprisingly, it’s often at the top of policymakers’ priorities. Yet, there is confusion on basic definitions and measurement of informality, as well as about its causes and consequences.

In this presentation, Norman Loayza will clarify the definition, determinants, and consequences of informality. First, this will done by reviewing some empirical evidence on various countries and regions. Then, informality will be placed in the context of economic development by presenting an analytical framework that links informality, regulations, and economic growth. The framework will highlight the trade-offs between formality and informality, the relationship between the different types of informality, and the connection between them and the forces of capital and productivity growth.

Loayza will also present projections for the size of labor informality in the next two decades for a large group of countries representing all regions of the world. The projections will include separately informal firm employees and self-employed workers. The projections will be based on the calibration and simulation of the model outlined previously and will serve to highlight its usefulness and limitations. Finally, a flexible and adaptable Excel-based toolkit for the analysis and projections of labor informality will be presented and made available to economists inside and outside the World Bank for their own use. 

Last Updated: May 19, 2016

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    Norman Loayza, Lead Economist, Research Department

    Norman Loayza is a Lead Economist in the Development Research Group at the World Bank. He is currently working at the newly opened World Bank Research Hub in Kuala Lumpur, Malaysia. Recently, he was director of the World Development Report 2014, Risk and Opportunity: Managing Risk for Development. Norman’s research has dealt with various areas of economic and social development, including macroeconomic management, economic growth, informality, private and public saving, financial depth and stability, natural disasters, and crime and violence. Norman has edited 9 books and published about 40 papers in professional journals and edited volumes. A Peruvian national, he holds a Ph.D. in economics from Harvard University.
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    Asli Demirgüç-Kunt, Director of Research

    Asli Demirgüç-Kunt is the Director of Research in the World Bank. After joining the Bank in 1989 as a Young Economist, she has held different positions, including Director of Development Policy, Chief Economist of Financial and Private Sector Development Network, and Senior Research Manager, doing research and advising on financial sector and private sector development issues.
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    Felipe Jaramillo, Senior Director, Macroeconomics & Fiscal Management

    Felipe Jaramillo is the Senior Director of the World Bank Group’s Macroeconomics and Fiscal Management Global Practice. In this position, Mr. Jaramillo leads a team of over 350 country economists and macroeconomics experts, providing integrative development strategies, policy-based lending, macro data, global perspectives, real-time policy analysis, country risk assessments, and innovative projection tools to countries around the world. Before this, Mr. Jaramillo was Director of Strategy and Operations, in the Office of the Managing Director and Chief Operating Officer and the Senior Vice President for Operations

The Policy Research Talks showcase the latest findings of the research department and their implications for World Bank operations. The goal of the monthly event is to facilitate a dialogue between researchers and operational staff, so that we can challenge and contribute to the World Bank's intellectual climate and re-examine conventional wisdom in current development theories and practices.  Read More »

Event Details
  • Time: 12:30 – 2:00 PM, June 7, 2016
  • Location: MC C2-131, World Bank Headquarters
  • CONTACT: Tourya Tourougui


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