How different are service and manufacturing firms in the informal sector? (Short Note)

Mohammad Amin, Enterprise Analysis Unit, FPDEA, World Bank

Abstract

A comparison of service and manufacturing firms in the informal sector shows that service firms are larger in terms of total sales and also generate more output per worker. They rely less on physical infrastructure and machines but more on human capital. Service firms also appear to be better integrated with the financial system with access to finance being less of an obstacle to their business. Some of the commonly held reasons for not registering such as taxes that registered businesses have to pay and benefits from registering such as better access to government programs appear to be less important to service than manufacturing firms. Last, there are important country specific differences between service and manufacturing businesses in, for example, female ownership and the motivation for starting the business.