Informal Economy Makes Up 1/3 Of GDP In Emerging Economies
A new systematic review argues that informal businesses should be treated as part of the larger entrepreneurial ecosystem, citing their significant scale in both advanced and emerging economies, and suggests policies to support their formalization
A systematic review published in the International Journal of Entrepreneurship and Small Business argues that informal businesses should be treated as part of the larger entrepreneurial ecosystem, rather than as a peripheral feature of the economy. The review, which examined 72 research papers published between 2009 and 2025, highlights the significant scale of the informal economy in both advanced and emerging economies.
The informal economy accounts for about one-fifth of gross domestic product (GDP) and 16% of employment in advanced economies. In emerging and developing economies, the informal economy averages about one-third of GDP and 70% of employment. These figures suggest that informal businesses play a substantial role in the global economy.
The review, titled 'Informal entrepreneurship and entrepreneurial ecosystems: a systematic literature review and future research agenda', was conducted by Ghita Naaimy et al. and published in 2026. The authors suggest that policies intended to formalize businesses should take a staged approach, including simpler registration and accessible regulatory information.
## Why it matters The findings of the review have significant implications for policies intended to support entrepreneurship and economic development. By recognizing the importance of informal businesses in the entrepreneurial ecosystem, policymakers can develop more effective strategies to support their formalization and growth. This, in turn, could lead to increased economic activity, job creation, and revenue generation.
The review's authors argue that research on entrepreneurial ecosystems has tended to concentrate on formal businesses, neglecting the role of informal businesses in these ecosystems. By examining how informal businesses interact with networks, institutions, and resources, the review provides new insights into the ways in which these businesses shape business activity in particular places.
## What happens next The authors suggest that future research should examine how ecosystem mechanisms shape whether and how informal businesses enter the formal economy. This could involve studying the impact of policies and programs aimed at supporting the formalization of informal businesses, as well as the role of incubators, accelerators, lenders, and mentoring organizations in this process. By exploring these questions, researchers and policymakers can develop a deeper understanding of the complex relationships between informal businesses, entrepreneurial ecosystems, and economic development.
