Businesses operating in the informal economy are typically unproductive and stagnant. Their presence, despite the various forms and situations across countries, may hinder aggregate productivity growth and lock an economy into a low economic development stage. The expansion of informal business activities poses a critical concern for long-term economic development and an increasing competitive pressure on the performance and innovation of formal firms.
Against this background, the Asian Productivity Organization (APO) conducts research on “Informal Economy and Productivity Growth”. This study analyzes the situation and estimates the impact of the informal economy on productivity in APO members. Recommendations for policies to reduce the vulnerability of workers in informal businesses, mitigate the negative impact of informal business on formal sectors, and enhance aggregate productivity growth will be made. EU-ERA at THE FUTURE has been tasked with examining the influence of the informal sector on productivity in the Malaysian context. In total there are 11 participating countries involved in this project including Malaysia.