A Theoretical Review of the Urban Informal Sector or Informal Economy in Developing Countries and Its Future Directions in an Era of Globalisation

Abstract: This paper is a theoretical review of the urban informal sector or ‘informal economy’ in developing countries. It reviews various literature on Market –Place studies done since 1970’s in different countries and studies of contemporary Small and Medium Enterprises to review the informal sector theory. Although there are many theories on urban economic activities in developing countries; dualistic, structuralist and legalistic, this paper, first, examines the different traditional dualistic paradigms used in the analysis of urban economic activities in developing countries to provide the theoretical background. Secondly, an analysis of functions and characteristics of market-places and their participants is done from diverse literature to illustrate how the market activity and its participants fit into the dualistic theoretical paradigms. Finally, the Informal Sector theory is examined in the context of a more contemporary theme of globalisation to provide a greater reality of the analysis of the Informal Sector enterprises. Here focus is on Small and Medium Enterprises. It is concluded that the dualistic models are fundamental but not ideal in the study of urban economic activities. Non-dualistic models such as “Petty Commodity Production”, Globalisation and the legalistic paradigms provide a greater reality in the analysis of Informal Sector enterprises. In an era of globalization the urban ’Informal Sector’, now conceptualised as the “Informal Economy” occupies a substantial position and it is integrated with the ‘formal’ sector and the global economy with development of a heterogenous mix of  Small and Medium Enterprises.  Thus, the use of dualistic paradigms in an analysis of informality is inappropriate. The informal economy is better addressed with the use of the globalisation and in a legalistic framework.