Entrepreneurship and the Shadow Economy

Entrepreneurship and the Shadow Economy

Edited by Arnis Sauka, Friedrich Schneider and Colin C. Williams

The shadow economy has become the focus of policy makers around the world. This timely book explores the relationship between entrepreneurship and the shadow economy by reviewing how to measure, explain and tackle this hidden enterprise culture. The editors bring together leading authorities in the field to examine existing methods to measure the shadow economy, explore entrepreneurship and shadow economy practices in various contexts, and provide policy suggestions for decreasing the shadow economy. It concludes by encouraging further research in this ever-growing field.

Chapter 1: The bottom-up power of informal entrepreneurship

José Ernesto Amor—s, Juan Pablo Couyoumdjian, Oscar Cristi and Maria Minniti

Subjects: business and management, entrepreneurship, economics and finance, economics of entrepreneurship


The informal sector is usually perceived as a negative feature of an economy since greater informality tends to translate into lower productivity. Nevertheless, informality may be the rational answer to contextual constraints. Thus, given the entrepreneurial nature of the informal sector, we argue that, in an environment with weak institutions, participation in informal activity may be beneficial at both the individual and aggregate levels. Using country-level data we provide evidence of a positive relationship between informal entrepreneurial activity and economic development. Our results suggest that, in countries with weak institutions, informal entrepreneurship is a viable and constructive substitute for the formal sector and is conducive to improvements in living standards.