Regional differences in informal–formal productivity gaps: Implications for productivity growth from structural transformation in Ghana

We show that subnational regional differences in the productivity gap (PG) between the informal and formal sectors can inhibit aggregate productivity growth from structural transformation (ST). Modelling the efficient intersectoral allocation of labour, the size of PG, corresponds to the intersectoral misallocation of labour. Using data from a census of firms for Ghana, we show that a reduction in the intersectoral misallocation of labour in the country's regions by 50% lowers the regional disparity in PG by the same amount and increases ST-led aggregate productivity in Ghana by 3%.