The Relevance of the Concepts of Formality and Informality: A Theoretical Appraisal

Since its first appearance in the 1970s, the concept of informality has encompassed an increasing number of meanings and referred to highly heterogeneous phenomena and measurement methods. The concept has been explored by development microeconomics via the notions of informal contracts and been enhanced by institutional economics and analyses of formal and informal institutions, such as conducted by Douglass North. This plurality of meanings and instruments calls into question the concept’s validity. The paper synthesises the critical issues within both a development economics and an institutional economics perspective. It proposes a more relevant distinction than the formal-informal one, which relies on an alternative theory of institutions. First to be examined are the conceptual problems inherent in the concepts of informality, especially the heterogeneity of the phenomena and measurement. Then the concept is analysed according to an institutionalist perspective. The dualistic framework has little heuristic value, with informal phenomena instead forming a continuum with formal ones. This continuit