Economic behaviour in South Africa's informal economy

Abstract

This report contributes to a larger project that seeks to understand the competitive behaviour of informal firms in a growing economy. This is relevant in SA where the formal economy dominates, and both output and employment are growing more rapidly than in the informal economy. In this situation, the informal economy does not appear to be dragging incomes down. But will informal economic activity be stimulated or crowded-out by a rapidly expanding formal economy? If the formal economy continues to expand, might informal activity grow at a faster, similar or slower pace? Might informal activity even shrink as the formal economy expands?