Informality and Agglomeration Economies in Africa

Urban informality is a large part of employment and housing provision in many developing world cities and helps define daily living for many. It is established that productivity of informal firms is limited, particularly in Africa, because informal production is typically small scale, underfinanced, under-skilled, and without adequate infrastructure. This research acknowledges these typical reasons for informality's limited productivity, but further tests the hypothesis that productivity of informal firms is limited because of reduced ability to generate agglomeration scale economies. The study evaluates the experience of an informal industry with intermediate input effects, labor pooling, urbanization economies, innovation, production specialization, and joint action. The handicraft industry in Nairobi, Kenya is examined because it is an example of an export oriented light manufacturing industry dominated by informality. The study uses mixed methods including a semi structured interview with 102 firms and obtrusive observation of important contexts.