The Contribution of Informal Economy to the Livelihood of the Urban Poor (Evidence Based Review)

Abstract

The objective of the review was to analyze the contribution of informal economy to the livelihood of the urban poor. To write this article, various secondary sources were reviewed. The informal sector constitutes a vital part of developing countries’ economy. It serves as a major source of employment and livelihood for the urban poor in the world in general and Ethiopia in particular. However, despite its multifaceted economic contributions in many developing countries, little is known about its contribution. In country’s experiencing rapid urbanization caused by rural-urban migration, informal economy is becoming the main mechanism of livelihood for the urban dwellers, to the poor in particular. The government designed various strategies to formalize the informal economy, regardless of lack of commitment and other problems in its implementation. Some of the challenges in the formalization process are: Absence of visible benefits, partial or piecemeal formalization reforms, knowledge gaps, non-tailored reforms, lack of readiness of the informal businesses to formalization, ignoring the existing traditional order and etc. Finally, some strategies to be designed to transform the informal economy were indicated, which include: Improving access to financing, arranging convenient place for businesses to operate, young people ought to focus on organizing themselves, youth migration from rural to urban areas should be reduced & further steps to address unemployment should be taken by creating jobs to the rural youths, initiating dialogue with participants in the informal economy,  simplify tax administration and etc.

Keywords: Informal economy; livelihood; migration; unemployment; urbanization

DOI: 10.7176/JPID/62-03

Publication date:July 31^st 2023