Shifting from informal to formal activity in the economy

The informal economy plays an important role in most middle income countries. Informal economic activities are characterized by low levels of technology and jobs with low levels of skills and productivity. Informal institutions governing relationships in the informal economy, and formal institutions such as laws and regulations often limit incentives and options of micro- and small enterprises to diversify, to switch into higher value added products and to grow. In other words, institutions in middle income countries often reflect low social capabilities for productive transformation.

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