The urban informal economy in Ethiopia: theory and empirical evidence

Abstract

Despite availability of ample empirical evidence regarding the role the urban informal sector plays in the economy of low income households in developing countries in general, development programmes and plans have failed to integrate the sector into the overall development effort. In addition, evidence is limited in the Ethiopian context. This study used national household survey data to explore the roles and characteristics of the informal sector in urban centers of Ethiopia, in light of existing theory. Data was analyzed using simple descriptive statistics such as means and frequencies, and results were discussed using relevant literature, document review and observation. Results show that 1) informal sector employment substantially increased, 2) some production activities such as manufacturing; services; and trade, hotels and restaurant activities decreased while construction and related activities increased, 3) shortage of capital was found to be the major factor limiting work participation in the sector, and the financing of the sector mainly came from informal sources, 4) the level of income per person varied sharply among the various sectors. Finally, the role and characteristics of the Ethiopian urban informal sector is not fully explained by any single theory since all the three theoretical perspectives discussed in the literature review appear to be working in combination.

Keywords: urban centers; employment; informal economy, informal activity establishments, urban informal production