Working Paper 127

The concept of ‘formalisation’ has been ubiquitous in development discourse and policymaking in the early twenty-first century. It has underpinned policy interventions and proposals from tax registration to property titling, and a range of measures intended to connect informal entities with state institutions or formally structured markets.

Despite the policy enthusiasm, however, the outcomes of formalisation policies have frequently been disappointing. We argue that this disconnect lies in the concept of formalisation itself and that common approaches to formalisation are often rooted in three conceptual fallacies: (a) there is a binary distinction between formal and informal economic actors; (b) all informal economic actors are alike; and (c) ‘becoming’ formal necessarily spurs a set of positive externalities.

These conceptual confusions pay insufficient attention to contextual complexity and the political and social dynamics that shape informality in a given context, and are frequently rooted in the practicalities and power structures that shape knowledge creation in this area. Consequently, we argue for a new research agenda on formalisation that challenges both its conventional conceptual foundations and the practices of research that engage with it.