Facing formalization pressures:Understanding options and choices for informal entrepreneurs

We explore the impact on informal entrepreneurs of a formalization process started by formal institutions, aiming to understand the options they have in their response to the pressure to formalize and to identify the determinants of the choice of becoming formal or remaining informal. To do so, we study the process of formalization of informal street sellers in the city of Yaoundé, Cameroon between 2004 and 2014. We find that, contrasting with prior studies that conceptualize the difference between formality and informality as a dichotomy, informal entrepreneurs choose among four distinct options that suggest a continuum, rather than a dichotomy, between formality and informality: remain informal; remain informal while exploiting formality; become opportunistically formal; and become formal. Our analysis further suggests that, beyond the factors highlighted in the literature, namely tax avoidance and opportunity seeking, the extent to which the informal business practices specific to a given activity are compatible or not with their formal equivalents is a key determinant of the informal entrepreneur’s choice.