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ICTs and the informal economy: mobile and broadband roles

Martha Garcia-Murillo (School of Information Studies, Syracuse University, New York, USA)
Jorge Andres Velez-Ospina (Faculty of Economics and Business, Universitat Autonoma de Barcelona Economics, Bellaterra, Catalunya, Spain)

Digital Policy, Regulation and Governance

ISSN: 2398-5038

Article publication date: 9 January 2017

Abstract

Purpose

The purpose of this paper is to explore whether information and communication technologies (ICTs) can move people from the informal to the formal sector. ICTs being multipurpose technologies can provide people with information about education, employment opportunities and government services that may potentially allow them to migrate to the formal sector.

Design/methodology/approach

The model includes variables that researchers have found to contribute to the growth of informality, such as the state of the economy, the impact of excessive taxes, the impact of regulation, the level of poverty and, of course, ICT metrics, specifically access to both cell phones and broadband as the main two mechanisms through which individuals in the informal sector can obtain information. The analysis relies on a multiple indicators and multiple causes statistical model, to evaluate the hard-to-measure informal economy. A panel data set of 170 countries covering a period of five years was used.

Findings

It was found that ICTs empower people, but such empowerment is not always positive for society. So, while mobile phones reduce transaction costs of informal business, this leads to their growth, as they are only a coordination technology. The empowerment that comes from broadband, meaning greater and deeper access to information and resources, can help reduce this sector of the economy and potentially improve these individuals’ lives as well.

Research limitations/implications

Measurement of the informal sector is a challenge to researchers precisely because it is hidden. This, like other work in this area, relies on estimates from indirect measures of the informal sector. The results are to be interpreted with caution. In addition, given that this research relies on country-level data, any specific policy decision will have to take particular circumstances into consideration to adapt these results to a specific context.

Practical implications

This study is important because of the more nuanced effect found between narrow and broadband technologies with respect to the informal economy and because of its policy implications. Given the results, governments should consider broadband as an additional tool to help individuals make the transition from the informal to the formal sector.

Social implications

Once an individual who works in the informal sector begins to realize the advantages of moving to the formal sector, it with the help of ICTs. This awareness could potentially lead to a slow but steady migration away from the informal economy that can improve the economic conditions of the population in these countries.

Originality/value

Scholars up to this point have been quite enthusiastic about the benefits of ICTs. In this paper, it was found that the effects are not always positive; a mobile does not help people move away from poverty and, in fact, supports the informal sector. It was found that only broadband can help these entrepreneurs move into the formal sector.

Keywords

Citation

Garcia-Murillo, M. and Velez-Ospina, J.A. (2017), "ICTs and the informal economy: mobile and broadband roles", Digital Policy, Regulation and Governance, Vol. 19 No. 1, pp. 58-76. https://doi.org/10.1108/DPRG-02-2016-0004

Publisher

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Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited