Formalizing the Informal Sector: Barriers and Costs

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Abstract
This article uses material from a series of case studies conducted in Latin America to analyse various aspects of the formalization of the informal sector. In particular, it examines the legal and bureaucratic barriers confronting informal sector micro‐enterprises which seek to become part of the formal, legal circuit, and assesses the costs in time and money which are involved in the formalization process. The process itself is seen as consisting of two elements — achieving legality and retaining that status over time — each of which involves certain bureaucratic and financial demands. While recognizing that the requirements for formalization can represent a burden in some cases, the main finding of the article is that the procedures and related costs vary between countries to such a degree that it is impossible to claim, as some earlier studies have done, that disproportionate regulation and bureaucracy constitute an insurmountable obstacle to the legalization of informal sector enterprises.

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