The informal economy in developing nations: a hidden engine of growth

Author:Toby Boyd
Position:Communications Division, WIPO

Innovation is happening everywhere, including in many small and informal businesses in developing countries. A new WIPO book explains how. Sacha Wunsch-Vincent and Erika Kraemer-Mbula, who edited it, talked to WIPO Magazine about the project.


Your book examines innovation and intellectual property (IP) in the informal economy. What do you mean by “informal economy” and why did you want to study it?

Erika Kraemer-Mbula: Definitions vary, but essentially the informal economy means economic activity that takes place outside formally regulated structures. Typically, informal economic enterprises are small, often based around families. Workers probably do not pay income taxes, nor do they enjoy social protections. While their activities are not necessarily illegal, they are not covered by the framework of national laws in a given country.

Importantly, there is not always a clear divide between formal and informal economies; for example, sometimes people may work cash in hand for formal, registered businesses. So defining informal economic activity can be difficult.

Sacha Wunsch-Vincent: And if the informal economy is hard to define, it is even harder to measure. But we do know that it is very big, especially in developing countries [see box]. That is why we wanted to study it. Our research was mandated by WIPO’s member states, who recognize that the informal economy is enormously important in many countries and that we cannot support innovation in those countries if we do not understand how innovation works in the informal economy.

Since the informal economy is hard to define and measure, does that mean it is also hard to research?

Erika Kraemer-Mbula: Yes, absolutely. Quite a few people have studied the informal economy, but very few have looked specifically at innovation in the informal economy. Much of that research has been anecdotal and rather one-dimensional. It tends to give the impression that any innovation that takes places in the informal economy is done by poor people working in poor countries, and is fairly basic and just a matter of them coping with the difficulties of their daily lives.

Sacha Wunsch-Vincent: We already knew from the best previous research that the reality is far more complex. Informal work covers a vast spectrum of activities, ranging from fairly basic survivalist labor to really sophisticated and skilled craft work. We wanted to capture that richness and complexity within a single analytical framework. And as this was a WIPO project, naturally we chose to focus on the role of IP, which no one had really done before.

That sounds like a real challenge. How did you go about it?

Sacha Wunsch-Vincent: We tackled the project from several angles. Our book...

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