The Informal Sector, Productivity, and Enforcement in West Africa: A Firm‐level Analysis

Abstract The informal sector accounts for a major share of A frican economies' GDP , employment and firms. Most national surveys of the sector focus on informal employment rather than the structure of informal businesses, with sample designs oriented to small scale individual or household firms. Here, firm‐level data are used, collected on 900 formal and informal businesses in the capitals of B enin, B urkina F aso and S enegal. Data from these surveys, complemented by semi‐structured interviews of major stakeholders in the three cities as well as data from national accounts, document huge enforcement problems, leading to the emergence of large informal actors coexisting with smaller informal businesses. While there is a significant difference in productivity between formal and informal firms, the productivity gap is much smaller for large informal firms than for small informal firms, suggesting that large informal firms have the pre‐requisites to formalize but choose not to do so.