Beyond the formal/informal enterprise dualism: Explaining the level of (in)formality of entrepreneurs

Abstract

Rather than portray formal and informal sector entrepreneurs as discrete groups, an emergent scholarship has conceptualized a continuum from wholly formal to wholly informal entrepreneurs. The aim of the article is to advance a degree of (in)formality approach by evaluating whether the institutional determinants found to explain whether an enterprise is formal or informal are also valid when explaining the level of (in)formality of enterprises. To do so, a 2017 survey of 500 retail microenterprises in the city of Lahore in Pakistan is reported. The finding is that higher levels of formality are more significantly associated with individual-level characteristics of the entrepreneur and enterprise, such as educational level and sales, than with formal and informal institutional conditions, as proposed by institutional theory. The article thus concludes by offering new theoretical implications and exploring some innovative policy measures to tackle informal entrepreneurship.