Fact of the Week: High Levels of Economic Informality Hurts Manufacturing Growth in Developing Nations

Caleb Foote October 5, 2020
October 5, 2020

(Ed. Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)

Source: Gbenoukpo Robert Djidonou and Neil Foster-McGregor, “Stagnant manufacturing growth in India: The role of the informal economy” working paper #2020-041, Maastricht Economic and Social Research Institute on Innovation and Technology, September 7, 2020.

Commentary: The growth of manufacturing is important for developing nations’ productivity growth and competitiveness. Yet in many developing nations there is also a high level of labor market informality, often actively supported by government policies and development advocates. A study of manufacturing in India finds that the informal segment is harmful to the growth in productivity of the manufacturing sector, because workers move on average from more productive formal employment to less productive informal employment.