ABSTRACT OF PAPER
Title: The Formal-Informal Economy Dualism in a Retrospective of Economic Thought since the 1940s
Author: Clement Christine
Central to the scientific debate about the ‘informal sector’ and the validity of the concept used to be a twofold challenge. The crux laid not only in the objective to explain the widely visible persistence of the informal economy in developing countries, but also in the identification of its roots and the proliferation conditions to be met ex ante. The present paper aims at establishing a link between the theories on informality and another issue that has arisen within the discussions on the causes of persistent poverty a few years ago, namely the issue of marginalization. Both concepts, the informal economy and the marginalization of people to the side-lines of society and the economy, are interlinked and self-enforcing. In the context of informality it is therefore necessary to look at the macroeconomic conditions of markets and the microeconomic conditions of people at the same time. On the macroeconomic level, any economy – be it formal or informal – consists of a set of different economic sectors and any of these sectors basically consists of an accumulation of people – the economic actors – on the microeconomic level. Consequently, every time one looks at the macro level where political and economic conditions frame the dynamics of the formal and the informal economy, one has at the same time to look at the micro-level where the social and economic conditions determine the incentives for every actor to participate either in the formal, the informal or in both economies. Informality has multiple sources depending on whether the agent took a voluntary choice or had to involuntary opt-out from an institutional system. In this paper, the connection between informality and involuntary exclusion shall be examined in a retrospective of economic thought since the 1940s. In the course of the present paper, a twofold argument shall be developed whose structure is as follows. The first section “Roots of the intertwined issue” is dedicated to the dual economy theories of the 1940s-1950s where have been laid the roots of the intertwined concepts of informality and economic exclusion. Recapitulating the works of Julius BOEKE, Arthur LEWIS, John HARRIS & Michael TODARO, Albert HIRSCHMAN and other socio-economists of that time, it will be argued that one of the necessary reasons for the persistence of the informal economy in developing countries is the dualism in institutional frameworks that leads to the marginalization of social groups and their subsequent exclusion from formal economic activities. The second section “Informality as an issue of and for development” reviews the advent of the concept of informality in the scientific literature. By referring to the groundbreaking Africa studies of Keith HART (1971) and the INTERNATIONAL LABOUR ORGANIZATION (1972), special emphasis will be given to the causal reciprocity between informality, marginalization and economic exclusion.
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