Informal Sector: Definitions and its Implications for Growth

This paper discusses the importance of the informal sector in supporting livelihoods and contributing to production and consumption activities of developing countries is widely evident. However, lack of consensus across countries in regard to a clear and uniform definition of the informal sector has hampered its identification and measurement for proper comparison. In addition, relationship between informality and economic growth is not straightforward and there is no concrete evidence that this sector enhances economic growth. This paper attempts to arrive at an operational definition of the informal sector and also provides an overview of the relationship between informality and economic growth.