Science1 publisher2 min readPublished
Review of 72 studies argues informal firms belong inside entrepreneurial ecosystems
Ghita Naaimy and colleagues reviewed 72 papers to argue that informal firms, about a third of developing-economy GDP, belong in entrepreneurial ecosystems. Their evidence is the published literature, so the advice on easing registration has not yet been tested on real programs.
The Scientist · Science desk
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What happened
- The papers were read for how informal firms interact with networks, institutions and resources, and how that shapes business activity in particular places.
- The authors argue that research on entrepreneurial ecosystems has tended to concentrate on formal, registered businesses.
- In place of immediate registration, they suggest staged steps: simpler registration, accessible regulatory information, and support that accepts alternative evidence of business activity.
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Why it matters
- decision Incubators, accelerators, lenders and mentoring groups that screen on registration would have to decide what alternative evidence of activity they accept and how they check it.
- exposure Ecosystem studies built on registered firms alone describe the slice of developing economies holding about 30% of jobs, leaving most workers outside the evidence base that shapes support.
- constraint Because the evidence is a synthesis of published papers, it can locate the research gap but cannot show that any support program's outcomes suffered from leaving informal firms out.
Read side by side, the World Bank averages the authors cite say something about output per worker. In emerging and developing economies, informal activity is about a third of GDP but 70% of jobs [5][6]. One-third divided by 0.70 is about 0.48, so an informal worker accounts for a bit under half the economy-wide average output per worker [1]. Both inputs are cross-country averages, and the ratio is rough. Research limited to registered firms therefore covers the part of these economies with about two-thirds of output and only 30% of jobs [2].
The big difference from advanced economies is in jobs. There, the cited figures are about one-fifth of GDP and 16% of employment [4]. In developing economies the informal share of jobs is more than four times as high [4].
The review, by Ghita Naaimy and colleagues in the International Journal of Entrepreneurship and Small Business [1], covers 72 papers published between 2009 and 2025 [2]. That is about four papers a year over a 17-year window [3]. A synthesis like this maps what researchers chose to study. It cannot show what happens to an informal firm that applies to an accelerator, because no such firm appears in its data. The summary does not say how the papers were selected or how many were set in developing economies.
The summary describes informal businesses as ones that operate legally but without legal registration [11]. On that definition the business is lawful and the missing piece is the paperwork. The staged approach the authors propose targets that gap [8].
The thing this doesn't tell you is whether any of it works. Any claim that existing support programs favour formal firms is inferred from the research gap [7] and the job figures. The review was not designed to test it. Testing it would take program records with a comparison group: informal firms admitted on alternative evidence of activity, set against similar firms that were turned away. The authors' own research agenda starts one step earlier, with how ecosystem mechanisms shape whether and how informal businesses enter the formal economy [10].
I think the employment figures alone are enough to justify counting informal firms in ecosystem research. The case for rewriting lender and incubator eligibility rules is weaker until someone runs that comparison.
What to watch
- Whether the full paper reports how the 72 papers were chosen and how many studied emerging and developing economies.
- A program-level study comparing informal firms admitted to incubators or loans on alternative evidence of activity with similar firms that were turned away.
- Whether any lender or accelerator adopts staged eligibility based on alternative evidence of business activity.