In a previous post, I highlighted the importance of focusing on the informal sector in developing countries. Most obviously, the informal sector in many developing countries is large. Further, the low entry and exit costs and little initial capital required to start an informal business means that the informal sector is likely to be a large recipient of the relatively less privileged sections of the society (in my previous post, I highlighted the position of women in the informal sector).
In my ongoing work, I compare another potentially vulnerable group, immigrants. In a survey of about 350 informal businesses in Burkina Faso, Cameroon and Cape Verde (Enterprise Surveys), roughly half of the businesses have a majority owner who is an immigrant to the city where the business is located. Systematic differences between immigrant-owned and locally owned businesses might be expected given that immigrants are usually a vulnerable group and take time to assimilate with the local community.
While the survey shows some important differences between local and immigrant owners of businesses, there is no consistent evidence that relative to locals, immigrants are either discriminated against, less efficient or come from a relatively less privileged background. Some of the differences that we do find include:
- Immigrants are more likely to be males, unmarried and younger;
- Immigrant-owned businesses are smaller in size but also more efficient;
- The level of education is roughly the same across locals and immigrants and so is the employment-unemployment status prior to starting the business;
- However, immigrant owners are less likely to have jobs in an established business and more likely to be victimized than the locals;
- Immigrants also appear to prefer the service sector over manufacturing compared with locals and are also more likely to operate from inside than outside household premises;
- We also find that some of the reported differences disappear as immigrants stay longer in the receiving city.
As I stated above, these differences do not amount to consistent discrimination against immigrants, but they do raise a number of interesting issues. First, there are specific aspects in which immigrants could be at a disadvantage – getting a job in an established business, higher crime and apparent difficulty in starting a large size business. Policy measures directed at these specific problems could help. Second, to the extent that lack of education or poor quality of human capital stunts growth in the informal sector, immigrants do not appear to be responsible for this – no more (or less) than the locals. In other words, the typically low level of growth and dynamism in the informal sector cannot be attributed to unemployed and uneducated immigrants filling the sector. Third, the preponderance of males over females among immigrants compared to local owners suggests that either women tend to migrate less than males or that there is a gender dimension to the severity of obstacles faced by immigrants vs. locals in starting and running a business. Either way, the gendering of migration-related policies may be a fruitful way forward.