Unlocking the informal economy:a literature review on linkages between formal and informal economies in developing countries

Growing awareness of the size and organizational potential of informal economies in the era of globalization has triggered a profusion of research on linkages between the formal and informal economies, moving in a range of empirical and theoretical directions. This Working Paper reviews over 200 items of current literature on formal-informal linkages under four categories linkage mapping, institutional design, governance effects, and the politics of formal-informal linkages. The paper focuses not only on patterns of linkages and whether they are beneficial or not, but also for whom, and with what impact on the governance structures of formal as well as informal economies. After examining what the existing literature reveals and identifying research gaps, the author outlines policy implications and a framework for further research.