A Proposal for a Standard With Innovation Management System

Oscar Cristi, José Ernesto Amorós and Juan Pablo Couyoumdjian
respected. We will explain these issues with more detail immediately below. In subsequent sections
we will present the data and variables we use, the proposed econometric models and estimation
strategies, and our results. We conclude with some brief comments about the implications of our
work.
2. Economic development and Informality: An analytic framework
In many countries the informal sector represents an important fraction of the official gross domestic
product. At the same time, however, important variations across countries exist regarding the relative
size of such informal economies. Recent studies that have examined the determinants of informality
have found that the size of the so-called informal sector in an economy depends on the extent of taxburdens
and labor market restrictions, as well as on the quality of government institutions (Loayza,
1996; Servén, Oviedo &Loayza, 2005; Schneider, Buehn& Montenegro, 2010). Thus, informality can
be said to be a consequence of weak institutions, a way to avoid expensive regulations, and to
prevent poverty and starvation (de Soto, 1989).
Following most of the literature on the subject here we define shadow economy or informality as the
use of illegal means to pursue legal activities that have a positive economic value (Gerxhani, 2004;
Schneider, Buehn& Montenegro, 2010).
It is especially interesting to us to note that in a very significant sense informality also represents an
entrepreneurial activity. It represents an individual’s best response to aspecific environment of weak
institutions, corruption, or regulations that limit an agent’s opportunities in terms of obtaining a formal
job, or opening a small business in the formal sector of the economy. Before we continue it is
important to explain that considering these constraints does not mean that there is no explicit choice
on the economic agents part when they decide to engage in an informal activity. This is, indeed, a
result of the equilibrium approach of a segmented labor market (Harris &Todaro, 1970). Economic
decision-making always takes place in the context of specific restrictions or constraints.
Hernando de Soto’s (1989) work provides classic illustrations as to the issues involved in the informal
economy analysis. Consider, for example, his examination of the state of affairs of the public transport
industry in Lima, Peru; where more than half of the industry is part of the shadow economy. These
activities are organized in this way because of the excessive burden of regulations of this sector.
These informal activities surely are entrepreneurial in nature, as de Soto convincingly argues.
We are aware that de Soto and other authors have argued that the problem of informality has multiple
dimensions. Some of the related issues are social in character and concern the lack of opportunities
some people have and the impact this has on poverty and living conditions in general. Others are
related to the rationality, or irrationality, of many economic regulations that impact on the size of the
informal sector. Finally, the efficiency of an entrepreneurial economy in this context has also been
questioned. This is an important point that we should consider more carefully.
In an important paper LaPorta and Shleifer (2008) have shown that firms established in the formal
sector are the main sources of productivity in the economy. This is consistent with a view that mainly
sees informality as a transitory alternative. This ‘survival’ aspect of informality also points to an overall
vulnerability of shadow entrepreneurship (Tokman 2007).
This evidence does notpreclude our argument in the sense that undertaking an entrepreneurial
activity informally represents an explicit decision by an acting agent. This decision may involve both
truly voluntary and other not so voluntary components. The ‘forced’ character of informality may,
however, be over-emphasized. Like this, agents voluntarily decide to work in the informal sector in
many cases, as explained by Maloney (2004).
At any rate we are really concerned with the ‘macro’ consequences of these ‘micro’ motives.In other
words, the question we are interested in examining here relates to the effects of informality on
economic development. Apparently, the way we measure ‘informality’ is key here. Our precise
understanding of the concept of ‘economic development’ is likewise very important in terms of our
analysis. Before we go into these issues, it is important to consider the precise avenues through
which we expect to find the effects of informality on economic development.
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