Informal Economy: Why First- Generation Entrepreneurs Prefer it over Formal Economy?

Abstract

Generally, there is a dominance of informal economy across all over the world economies and particularly in respect of first-generation entrepreneurs. We know that a formal economy is essential for comprehensive and inclusive economic development yet third world countries are mostly dominated by the prevalence of informal economy rendering slower economic growth. The present study determines the factors attracting or supporting first-generation entrepreneurs to operate under the informal economy and therefore, the objective of this study is to identify and examine such factors. The data was collected through the survey and to test the significance of variables of the hypothesis we have employed the chi-square test χ2. The study will help the policymakers to enhance the quantum of the formal economy and make suitable policies to discourage the informal economy. The findings of the study conclude that first-generation entrepreneurs do prefer the informal economy over the formal economy due to the various reasons predominantly cost efficiency in the informal sector, urbanisation based retail trade, easy entry and exit, low capital requirement, non-compliance of procedural laws, exclusive control in case of locally operated businesses, etc.