Nason Bothello AMR2023 Far From Void How Institutions Shape Growth in Informal Economies

r Academy of Management Review
2023, Vol. 48, No. 3, 485–503.

https://doi.org/10.5465/amr.2019.0170
FAR FROM VOID: HOW INSTITUTIONS SHAPE

GROWTH IN INFORMAL ECONOMIES
ROBERT NASON
McGill University
JOEL BOTHELLO
Concordia University
Entrepreneurship scholars often lament the lack of economic growth in contexts of poverty
and informality. We propose that this dismal assessment, as well as subsequent prescriptions
to address it, flow from a narrow epistemological approach to informality based on absence,
where the lack of (Western) market-supporting legal and regulatory institutions explain miss-
ing economic growth at the firm level. In contrast, we build a theoretical approach grounded
in presence, proposing that a more comprehensive incorporation of existing institutions may
reveal less visible, individual level types of entrepreneurial growth occurring in informal
economies. To do so, we conceptualize informal economies as institutional interfaces built of
“bits and pieces” from market and nonmarket institutions. We propose that the configuration
of these interfaces influences the cultural toolkits of inhabitant entrepreneurs, which in turn
shapes how they grow in an informal economy. Specifically, we link three dimensions of
institutional complexity at the institutional interface (jurisdictional influence, fragmentation,
and incompatibility) to three types of growth (direct, dispersed, and disguised) that vary in
terms of visibility. Our theory animates understanding of diverse informal economies and
the entrepreneurial activity that exists within them.
In contexts of poverty, economic growth through growth in such contexts are conspicuously lacking.
entrepreneurship holds the potential to empower Scholars instead lament the inability of a vast popula-
individuals and improve livelihoods (Bjørnskov & tion of microenterprises—run by so-called “necessity
Foss, 2016; George, McGahan, & Prabhu, 2012; entrepreneurs” (Dencker, Bacq, Gruber, & Haas,
Sutter, Bruton, & Chen, 2019). Yet, accounts of 2021)—to grow beyond subsistence into substantive
small- and medium-sized enterprises (Fajnzylber,
Maloney, & Montes-Rojas, 2009; Nichter & Goldmark,
We are very grateful for the support of our editor Sharon 2009). This “missing middle” is often attributed to
Alvarez, as well as for the encouraging, challenging, and the fact that such ventures operate in informal
constructive comments of three anonymous reviewers that economies—that is, economic contexts where legal
undoubtedly significantly improved our manuscript. The
and state regulatory institutions are absent or impo-
paper also benefitted from feedback received from the 2019
tent (Godfrey, 2011; Sassen, 1994). In this view,
AOM Conference, the 2020 EGOS Conference, McGill
University’s Strategy and Organization Area, and the Centre informality often purportedly hinders economic de-
for African Smart Public Value Governance (C4SP). We are velopment and keeps market participants mired in
particularly grateful for insightful comments on drafts and poverty (de Soto, 2000; Sumner, 2012).
generative conversations with many individuals, especially However, this conceptualization of informal eco-
Sophie Bacq, Alex Bitektine, Pierre-Yann Dolbec, David nomic activity—implicitly derived from comparisons
Gras, Anna Kim, Geoff Kistruck, Saku Mantere, Gerhard with Western, high-income, and formal settings—
Schnyder, Angelique Slade Shantz, and Tim Weiss. Both contains problematic premises. The first is specious
authors would like to recognize financial support from the ontological assumptions about the institutional envi-
Canadian Social Sciences and Humanities Research Council
ronment. Often described as “institutional voids,” con-
as well as Concordia University and McGill University. We
also extend a special thanks to Andrew Charman and Leif
texts of informality and poverty are characterized
Peterson at the Sustainable Livelihoods Foundation in Cape by missing legal and market supporting institutions
Town for opening our eyes to many unique and overlooked such as property rights and rule of law (Khanna &
dynamics within the informal economy. Both authors con- Palepu, 1997, 2010). This narrow perspective abets
tributed equally to this manuscript. a second, related assumption: namely, that growth
485
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486 Academy of Management Review July
occurs through visible, firm-level expansion (de Soto, poverty (Bjørnskov & Foss, 2016; George et al., 2012;
2000; Hart, 2006). These premises overlook less visible Kistruck, Webb, Sutter, & Ireland, 2011; Sutter et al.,
but equally viable types of growth, such as the side 2019). Although much research focuses on the bene-
hustles of urban Kenyan entrepreneurs (Weiss & fits of formalization (Assenova & Sorenson, 2017;
Weber, 2017: 374) or the concealed growth of South Nichter & Goldmark, 2009), informal economic
African township enterprises (Charman, Petersen, & activity—occurring in contexts where legal and
Govender, 2019). As a whole, extant approaches to state regulatory institutions are absent or impotent
informal economies tend to connect growth that does (Godfrey, 2011; Sassen, 1994)—plays an important
not occur to the absence of certain (decidedly Western) role in inclusive growth that alleviates poverty and
institutional conditions, which misses the crucial reduces inequality. For instance, in Cape Town, it has
role of nonmarket institutions in economic activity been estimated that informal-sector income decreases
(Polanyi, 1957). In contrast, we seek to understand the poverty rate from 25.1% to 20.6% (City of Cape
growth that does occur and the presence of institu- Town, 2015).
tions that facilitate it. This motivates our research Informality also merits attention because of how
question: “What types of growth occur in informal ubiquitous it is (Webb, Tihanyi, Ireland, & Sirmon,
economies, and under what institutional conditions?” 2009). Recent estimates indicate that informal econo-
In answering this question, we make several con- mies employ 61% of the entire world’s working popu-
tributions. First, we advance a conceptualization lation (Bonnet, Vanek, & Chen, 2019) and make up
of informal economies as institutional interfaces 31% of national GDP on average (Medina & Schneider,
assembled with cultural bits and pieces (Mair, Marti, 2019). This extends to the highest-income nations:
& Ventresca, 2012; Schneiberg, 2007) from an institu- Medina & Schneider (2019) estimated that, within the
tionally complex environment (Greenwood, Raynard, United States, for example, informality represents
Kodeih, Micelotta, & Lounsbury, 2011; Raynard, 7.6% of GDP.
2016). This alternative theoretical framework to insti- However, we choose to focus our theorizing on
tutional voids acknowledges and forefronts the rich- contexts of poverty within non-Western settings,
ness and variety of institutions within as well as where informal economic activity is both a primary
across informal economies. We extend this perspec- source of income (Martınez, Short, & Estrada, 2017)
tive by theorizing about how certain dimensions and a central rather than peripheral presence (Bru-
of complexity influence growth. Second, we catalog ton, Khavul, & Chavez, 2011). This aligns with prior
distinct types of growth among informal economy studies on informality, given that such economic
entrepreneurs. We define growth as an increase in activity is estimated to comprise 90% of employ-
economic activity undertaken by an individual entre- ment in low-income countries (Bonnet et al., 2019).
preneur (rather than a firm) and identify particular Despite shedding light on many important entre-
types of growth—direct, dispersed, and disguised— preneurial challenges, the tenor of the rapidly ex-
that are culturally informed as much as economically panding body of literature investigating informal
determined (Gehman & Soubliere, 2017; Lounsbury, entrepreneurship in contexts of poverty is predomi-
Gehman, & Glynn, 2019). In doing so, we answer calls nantly bleak (Godfrey, 2011; Sutter et al., 2019).
to explore “how” growth occurs rather than “how Informal economies are often characterized as sub-
much” (McKelvie & Wiklund, 2011) and challenge an sistence marketplaces (Viswanathan & Rosa, 2010)
informal economy literature that largely focuses on characterized by obstacles such as crime, political
strategic deficiencies and a lack of growth (Alvarez & conflict, and gender inequality (Mair et al., 2012;
Barney, 2014; Bruton, 2010; Slade Shantz, Kistruck, & Sutter, Webb, Kistruck, & Bailey, 2013). Entrepre-
Zietsma, 2018). Third, we advocate informal econo- neurial activity is seen as driven “by necessity,” due
mies as contexts that can not only generate theoretical to a lack of employment alternatives (Brewer &
insight into institutional complexity and cultural en- Gibson, 2014), and as a means to fulfill basic human
trepreneurship, but also help us understand how for- needs (Dencker et al., 2021). While recent research
mal economies are structured. is starting to recognize the great variety inherent
among necessity entrepreneurs (Dencker et al.,
2021), studies on the development of informal entre-
GROWTH IN INFORMAL ECONOMIES
preneurs regularly report a preference for survivalist
Growth undertaken by entrepreneurs has been strategies (Bruton, 2010), imitative opportunity pur-
touted as a substantive means of economic and suits (Alvarez & Barney, 2014), and replication of
social development, especially in contexts of the actions of others (Maas & Herrington, 2006).
2023 Nason and Bothello 487
Innovative activities (Slade Shantz et al., 2018) and differences across informal economies (Bothello,
strategic differentiation (Doering, 2016) are consid- Nason, & Schnyder, 2019).
ered to be limited or missing. The consistent depic- Early NIE economists (Greif, 1993) recognized that
tion emerging from this literature is of informal contract enforcement could be effectively achieved
economy entrepreneurs as low-skilled individuals through personal ties and norms (e.g., “sanctions,
who are pushed by necessity into creating small taboos, customs, traditions, and codes of conduct”)
firms that do not grow (Dencker et al., 2021; Nichter as much as with formal, legal mechanisms (North,
& Goldmark, 2009; Poschke, 2013). 1990: 97). Some recent management scholarship—
However, we contend that this rather pejorative de- especially in international business—reincorporates
piction of informal economy entrepreneurship as stra- this, outlining how nonmarket institutions function
tegically deficient may stem from the assumptions not as simplistic constraints but as important deter-
that scholars make about the institutional context. minants of firm behavior (Eesley, Eberhart, Skousen,
Extant scholarly accounts tend to consider the charac- & Cheng, 2018; Peng, 2003; Peng, Wang, & Jiang,
teristics of informal enterprises compared with their 2008; Uzo & Mair, 2014; Webb, Khoury, & Hitt,
formal counterparts (Sassen, 1994). Accordingly, stud- 2020). However, this nuance remains the exception
ies on informal economies often retrofit theory and rather than the rule, with much entrepreneurship
knowledge built on organizations operating within research in contexts of poverty relying on perspectives
Western formal economies. This epistemological ap- that either discount institutions based on religious,
proach carries assumptions about how growth occurs communal, familial, and ethnic ties and norms or treat
and under what kind of institutional conditions. This them as impediments to economic activity (Kistruck
is exemplified in the predominant analytical tool used et al., 2011; Mair & Marti, 2009; Webb, Kistruck,
to investigate informal economies: institutional voids. Ireland, Ketchen, & Ketchen, 2010). Informal econo-
mies ostensibly have few cultural mechanisms that
match or surpass formal mechanisms in terms of effec-
Absence: Informal Economies as Voids tiveness in structuring entrepreneurial activity.
This bias has important implications for studying
The concept of “institutional voids,” as popular- growth. In using developed, formal economies as a
ized by Khanna and Palepu (1997), extended West- baseline, the assumption is that growth in informal
ern accounts of corporate governance and market economies occurs in a similar manner; namely, an
development to non-Western contexts. The term is expansion of economic activity through a focal firm.
drawn from premises based in new institutional eco- Accordingly, entrepreneurship research concludes
nomics (NIE); namely, that markets and economic that the lack of evidence for this type of growth in
exchange occur because of effective constraints— informal economies means that growth does not exist.
that is, “rules of the game” (North, 1990). Manage- However, we contend that alternative and equally via-
ment scholars have largely interpreted these “rules” ble types of growth do exist in informal economies.
as those established by legal and state regulatory Ethnographies and accounts from proximal fields
institutions (Peng, Sun, Pinkham, & Chen, 2009); such as geography and sociology reveal creative but
such institutions are therefore given primacy and less detectable types of growth (Charman et al., 2019;
viewed as the critical institutions to facilitate eco- Weiss & Weber, 2017). In an effort to theorize about
nomic activity. existing as well as alternative types of growth, we shift
The concept of institutional voids has become a the level of analysis from the firm and define growth
dominant theoretical point of departure for manage- as the individual expansion of economic activity. We
ment research in impoverished, non-Western settings. specifically develop three types: (a) “direct growth”
Missing or inefficient markets are ostensibly the result refers to an individual expanding economic activity
of weak, dysfunctional, or missing legal and regula- through a single entrepreneurial endeavor (e.g., growth
tory institutions (Doh, Rodrigues, Saka-Helmhout, & of a firm), (b) “dispersed growth” refers to an individ-
Makhija, 2017). The voids approach thereby focuses ual expanding economic activity across several inde-
on features that non-Western low-income settings lack pendent entrepreneurial endeavors, and (c) “disguised
in comparison to Western high-income settings— growth” refers to an individual expanding economic
specifically, enforced legal and regulatory frame- activity privately while concealing it publicly. How-
works. This fixation on common deficiencies ever, understanding these alternative types of growth
encourages a homogeneous treatment of non-Western requires a revamped consideration of the institutional
contexts and obscures the reality of tremendous environment of inhabitant entrepreneurs, one that
treats institutions as building blocks—rather than sim- Godfrey, 2011; Mair et al., 2012). However, rather
ply constraints—of economic activity. than considering these as sufficient in and of them-
selves, we consider market institutions to be one com-
Presence: Informal Economies as ponent among others that shape economic activity.
Institutional Interfaces Our presence-based approach therefore differs from
recent work highlighting how nonmarket institutions
Building on Mair et al. (2012), we conceptualize an function as alternative “rules of the game” (Saka-
“informal economy” as an “institutional interface,” Helmhout, Chappin, & Vermeulen, 2020; Webb et al.,
adopting a more expansive definition of institutions 2020)—we instead view informal economies as con-
than what is typically employed by scholars using the structed from various combinations and permutations
term institutional void. In this view, “institutions” of market institutions and nonmarket institutions,
are the “regulative, normative, and cultural-cognitive which shape the actions of inhabitant entrepreneurs.
elements that, together with associated activities and This conceptualization aligns with accounts from eco-
resources, provide stability and meaning to social nomic sociology highlighting the constitutive impact
life” (Scott, 2014: 56). This sociological approach of institutions, even in formal economies (Polanyi,
treats economies—formal and informal alike—as con- 1957; Stark, 1996). Figure 1 illustrates this insti-
structed from myriad institutions beyond market tutional interface conceptualization of an economy,
norms and legal enforcement mechanisms, including with different institutional bits and pieces (Mair et al.,
those drawn from religious, familial, communal, pro- 2012; Schneiberg, 2007) represented by interlocking
fessional, and political arrangements (G€ um€
usay, puzzle pieces.
2018). As Polanyi (1957: 250) noted, any economy “is With this contextual contingency, informality be-
embedded and enmeshed in institutions, economic comes remarkably idiosyncratic from one setting to
and noneconomic. The inclusion of noneconomic is the next. It is for this reason that we use the plural
vital. For religion and government may be as impor- “informal economies,” underscoring the tremen-
tant for the structure and functioning of the economy dous diversity in institutions—religion, family, com-
as monetary institutions.” In this view, an economy munity, professions, politics, and so on—in any
can be considered as an interface between market and particular informal economy rather than a general-
nonmarket institutions (Mair et al., 2012). ized informal economy characterized by underde-
However, in line with our definition of informality veloped capital markets and weak property rights
as operating in contexts where legal and state regula- (Godfrey, 2011; Webb, Ireland, & Ketchen, 2014).
tory institutions are absent or impotent (Godfrey, Informal economies in the South Pacific, South
2011; Sassen, 1994), a key distinction of informal Africa, and Ghana, for instance, are starkly different
economies compared with their formal counterparts from one another with respect to norms and values
is the weak or absent influence of legal and state reg- and what constitutes appropriateness of exchange
ulatory institutions. As Sassen (1994: 2289) noted: arrangements. In Fiji, for example, a consensus about
[An] “informal economy” refers to those income- what constitutes “customary land” facilitates collabo-
generating activities occurring outside the state’s reg- ration between Maori entrepreneurs and their suppli-
ulatory framework … The scope and character of the ers (Scheyvens, Banks, Meo-Sewabu, & Decena, 2017).
informal economy are defined by the very regulatory In South African townships, despite xenophobia
framework it evades. For this reason, [an] informal undermining interaction with immigrants, the philos-
economy can only be understood in terms of its rela- ophy of “Ubuntu”—that is, community obligation—
tionship to [a] formal economy [i.e., a] regulated
permeates exchanges (Charman, Petersen, & Govender,
income-generating activity.
2014). In Ghana, institutions that engender collectiv-
Yet, the lack of legal and state regulatory institu- ism and fatalism play a critical role in shaping entre-
tions is not—and should not be—the defining fea- preneurial activity (Slade Shantz et al., 2018).
ture of informal economic activity; we underscore In recasting informal economies as interfaces of
that this phenomenon should also be evaluated on the bits and pieces of different institutions, we can
presence of institutions. For instance, informal econo- incorporate the salient role of both market and non-
mies may still contain market institutions, in the form market institutions in shaping economic activity.
of normative and cultural-cognitive elements such as Table 1 delineates critical differences between our
norms and values based on self-interest, autonomy, focus on presence in informal economies and the
accumulation of capital, or logics of instrumental voids approach that concentrates on absence. In our
exchange (Di Tella, Galiant, & Schargrodsky, 2007; next section, we proceed to consider how the nature
FIGURE 1
Examples of Formal and Informal Economies as “Institutional Interfaces”
Legal Market Legal

Institutions Institutions Institutions
Professional Political
Institutions Institutions
Professional
Formal Institutions
Market Economy Informal Economy
Institutions
Community Family
Religious
Institutions Religious
Institutions
of the institutional interface may affect actions taken Religious, communal, ethnic, and family institutions—
by entrepreneurs, particularly how they engage in among others—therefore furnish demand that can be
growth. crafted into economic activity by skillful, growth-
oriented entrepreneurs.
Culturally Informed Growth in The composition of the institutional environment,
Informal Economies then, influences entrepreneurial endeavors. More spe-
cifically, as Lounsbury and Glynn (2019: 9) remarked,
Nonmarket institutions not only regulate exchange culturally pluralistic environments enable actors to
(Eesley et al., 2018; Saka-Helmhout et al., 2020; Webb use “cultural elements [to] construct, maintain, and
et al., 2020) but can also create market demand that renegotiate … practice[s].” In other words, informal
enables entrepreneurial activity. Specifically, the economy entrepreneurs can use a repertoire of cul-
NIE perspective views market opportunities as tural resources—language, symbols and rituals—at
derived from exogenous tastes and preferences of cus- their disposal as a cultural toolkit (Swidler, 1986) that
tomers (Webb et al., 2020), while sociologists view they can leverage to signal their venture to different
tastes and preferences as culturally and institutionally stakeholders. To the extent that these communicative
inscribed. For instance, the institution of marriage efforts successfully resonate with key audiences, an
spawns market demand for matchmakers, jewelry, entrepreneurial endeavor may gain legitimacy and
wedding venues, decorations, and attire. As another access to resources (Elsbach & Sutton, 1992). In this
example, religious beliefs in supernatural spirits cre- way, culture (as contained within nonmarket institu-
ate robust markets for traditional medicine, spells, tions) functions as an important determinant in how
and curses (Charman et al., 2019; Godfrey, 2011). entrepreneurs take action (Lounsbury & Glynn, 2001).
TABLE 1
Contrasting Theoretical Approaches to Informal Economies: Absence vs. Presence
Absence Presence
Central conceptualization Institutional void Institutional interface

Disciplinary tradition Economics Sociology
Primary bases of legitimacy Market institutions Multiple institutions
Market opportunities Exogenous Culturally inscribed
Primary exchange governance Legal infrastructure Norms and social sanctions
Level of growth Firm Individual
Growth Nonexistent or limited Variegated and culturally informed
As Meyer and Rowan (1977: 345) noted, “the building Jurisdictional Influence of Market Institutions
blocks for organizations come to be littered around the and Direct Growth
societal landscape; it takes only a little entrepreneurial
In any institutional interface, multiple institutions
energy to assemble them into a structure.”
exert influence over the same domain; and the inter-
These toolkits are a central basis of “cultural
play of different institutions is a source of tension
entrepreneurship,” defined by Lounsbury and Glynn
and opportunity for the individuals caught in the
(2019: 1) as the efforts of entrepreneurs to shape
interstices (Murray, 2010). Adapting Raynard’s (2016:
meaning in a way that “construct[s] an optimally or
314) notion of “institutional overlap,” we examine
legitimately distinctive organizational identity in a
the extent to which market norms and values in
focal institutional field.” While cultural entrepre-
particular—for example, self-interest, autonomy,
neurship has mainly been applied to explore how
accumulation of capital, or instrumental exchange (Di
entrepreneurs engage in storytelling in order to obtain
Tella et al., 2007; Mair et al., 2012)—are salient within
resources from stakeholders, a growing body of work
an informal economy institutional interface. We con-
considers how it applies to substantive organizational
sider this to be an important dimension of variation
practices and structure (Gehman & Soubli ere, 2017;
as these market institutions provide symbolic re-
Lounsbury & Glynn, 2019). We consider, therefore,
sources that informal economy entrepreneurs can
that these insights can be extended to account for
marshal to legitimate their actions, especially toward
how substantive entrepreneurial actions (such as
firm-level growth. Accordingly, this dimension is
growth) are facilitated.
meant to incorporate the handful of accounts in prior
literature that document the scaling up of a focal
VARIANCE ACROSS AND GROWTH WITHIN entrepreneurial endeavor (typically, a firm) in an
INFORMAL ECONOMIES informal economy (e.g., Assenova & Sorenson, 2017;
Nichter & Goldmark, 2009).
Institutional Complexity as a Driver of Informal
On one hand, prior research discusses the existence
Economy Heterogeneity
of informal economies where market institutions exert
We propose that differences in the interplay among very little influence upon actors. For instance, the
institutions at an institutional interface creates great informal economies within some rural Ghanaian
variety across informal economies. We mobilize in- villages can be characterized as an “island network,”
sights from institutional complexity (Greenwood et al., featuring an internally tight-knit network of market
2011; Raynard, 2016), a literature that focuses on participants with few ties to external groups (Slade
how organizations respond to diverse (and potentially Shantz et al., 2018). Culturally, these settings can be de-
conflicting) prescriptions and proscriptions within fined by what Swidler (1986: 281) called “undisputed
their institutional environment. Complexity is deter- authority of habit, normality, and common sense”
mined by the manner in which institutions—market, emanating from religious and ethnic communities,
religious, familial, communal, professional, and politi- family affiliations, and so forth. In such enclosed con-
cal, among others (Thornton, Ocasio, & Lounsbury, texts, we consider that there is a weak salience of mar-
2012)—interact. Institutional prescriptions and pro- ket institutions within the interface, which is instead
scriptions may conflict or converge based on the extent characterized by the prescriptions and proscriptions
of alignment between their respective norms, values, of other institutions. Actors lack access to cultural
assumptions, and identities (Raynard, 2016). resources from outside these arrangements, meaning
We explore variance in terms of this interaction. that their cultural entrepreneurship activities are
Specifically, we adapt three dimensions of institu- largely defined based on symbols, practices, and narra-
tional complexity (Raynard, 2016) to focus on the tives from nonmarket institutions.
interface between market and nonmarket institutions On the other hand, some informal economies may
in informal economies: (a) jurisdictional influence of be characterized by a high salience of market norms
market institutions, (b) fragmentation of nonmarket and values. In Kenya, “foreign business ideas and
institutions, and (c) incompatibility between market management philosophies are introduced and
and nonmarket institutions. Specifically, we theorize adopted with high authority” (Weiss & Weber, 2017:
how variance in each dimension of institutional com- 381). This implies an influx of market-based cultural
plexity influences the cultural toolkit that entrepre- resources that can legitimate entrepreneurial actions
neurs draw on to legitimate their entrepreneurial in a highly consequential manner. Oborn, Barrett,
actions, thereby shaping how they grow. Orlikowski, and Kim (2019) explored how Western
mobile payments—also in Kenya—were adopted visibly through a focal firm (i.e., direct growth). Con-
and integrated into microenterprise operations. Fur- texts with low jurisdictional influence of market insti-
thermore, and in contrast to the Ghanaian example tutions (Figure 2, left side) represent the most common
above, Liedeman, Charman, Piper, and Petersen characterization of informal economies from prior lit-
(2013) revealed how immigrant and refugee entrepre- erature, and the lack of direct types of growth. Contexts
neurs in South African informal economies leverage with high jurisdictional influence of market institu-
supply chains from their countries of origin to under- tions (i.e., the right side of Figure 2), on the other hand,
cut local competitor pricing. In the same setting, would explain a handful of accounts wherein firm
Charman et al. (2019: 10.8) observed how poultry level growth in informal economies has been observed
vendors source their chickens from formal economy (Nichter & Goldmark, 2009). More formally stated:
egg farmers who cannot sell their produce elsewhere.
Proposition 1. The greater the jurisdictional influence
In these contexts, although legal and state institutions
of market institutions on an informal economy, the
do not regulate commercial activity, market-based more likely inhabitant entrepreneurs will engage in
norms such as arm’s-length transactions, price com- direct growth.
petition, and ties with formal market actors are still
highly salient and active in shaping informal econo-
mies. Figure 2 illustrates the conceptual difference Fragmentation of the Interface and
between informal economies with low and high mar- Dispersed Growth
ket jurisdictional influence.
We propose that these market norms and values are Informal economies also vary with respect to the
accompanied by symbols, rituals, language, narratives, plurality of nonmarket institutions; the literature on
and so on for informal economy entrepreneurs, who institutional complexity describes contexts where
may use these resources as a foothold to engage in entrepreneurs must balance multiple prescriptions
cultural entrepreneurship in a way that legitimizes and proscriptions from disparate institutional audi-
growth. However, since the composition of the cul- ences (Greenwood et al., 2011; Pache & Santos, 2010).
tural toolkit is increasingly derived from market insti- We employ the term “fragmentation” (Meyer, Scott, &
tutions, informal economy entrepreneurs are likely to Strang, 1987), although similar contexts have been
engage in not only narratives and storytelling, but also variously described as “unsettled” (Raynard, 2016;
actions that conform with market prescriptions. As Swidler, 1986) or “polycentric” (Batjargal, Hitt, Tsui,
a result, the cultural toolkit of the entrepreneur is Arregle, Webb, & Miller, 2013; Ostrom, 2010). We
shaped toward the type of growth that is legitimated propose that fragmentation is a critical dimension
by the market; namely, expanding economic activity along which to examine variation in informal
FIGURE 2
Market Jurisdiction at the Institutional Interface of an Informal Economy
Market
Institutions
Market
Institutions
Professional Professional Family

Family
Institutions Institutions Institutions
Institutions
Political Religious Political Religious

Institutions Institutions Institutions Community Institutions
Community
Low Market Jurisdiction High Market Jurisdiction

economies, as it captures both the distribution of competing bases of legitimacy, many of these groups
legitimacy among nonmarket institutions as well as are disconnected from one another due to xenophobia
their potential disconnectedness from one another or religious tensions (Hickel, 2014).
(Greenwood et al., 2011). Much of the prior literature on institutional com-
Informal economies contain a rich array of institu- plexity emphasizes the challenges of fragmentation—
tions (Godfrey, 2011; Mair et al., 2012) that influence that is, handling multiple disconnected audiences
individual behavior, ranging from family (Gras & with competing interests (Meyer et al., 1987; Pache &
Nason, 2015; Khavul, Bruton, & Wood, 2009) to eth- Santos, 2010). Cultural entrepreneurship, in contrast,
nicity (Yenkey, 2018) to religion (Slade Shantz et al., embraces a more agentic role for the entrepreneur
2018). Adding to the complexity of these settings is (Gehman & Soubliere, 2017; Lounsbury & Glynn,
the fact that a higher-level institutional “order,” 2001), where fragmentation provides access to new
such as religion, may comprise a plurality of institu- and different sets of cultural resources and sources
tions, such as Islam, Hinduism, and Christianity, of legitimacy (Lounsbury & Glynn, 2019). For instance,
each with their own set of prescriptions and values Fisher, Kuratko, Bloodgood, and Hornsby (2017)
that may align (or not) with the market (G€ um€ usay, contended that entrepreneurs modulate how they
2020). The range of—and interactions among—these frame their new venture according to the demands
institutions can vary greatly from one informal econ- of different resource-granting audiences (e.g., grant
omy to the next. administrators, venture capitalists, and institutional
On the one hand, some informal economies can be investors). Thus, fragmentation generates an array of
conceptualized as consolidated interfaces where insti- norms and values about what legitimate action may
tutions are tightly interwoven. Such environments look like, providing cultural bits and pieces for an
generally feature clarity regarding institutional priori- entrepreneur to assemble. Figure 3 illustrates the dif-
tization; namely, having a centralized source of legiti- ference between informal economies with low and
macy (Greenwood et al., 2011; Raynard, 2016). For high fragmentation.
instance, the informal market of La Salada, Argentina, Fragmentation may further enable entrepreneurs to
was initially established by Bolivian immigrants who engage in a type of growth that seizes on the opportu-
organized themselves into an association to pay for nities generated through the prescriptions of disparate
neighborhood security and basic services, developing audiences. For instance, Weiss and Weber (2017: 374)
well-established political norms around “plebeian provided evidence of a “hustler” mindset prevalent
citizenship” (Dorado & Fernandez, 2019; Forment, among Nairobi entrepreneurs, defined as a “proactive
2015). In contrast, Cape Town township economies and outcome-focused mentality that seeks to generate
and Nairobi settlement economies tend to be far more income through finding fixes for many different pro-
diverse and segregated in terms of ethnic and religious blems or business opportunities.” The authors noted
institutions, owing to a highly fragmented local popu- that, in contrast to the single-mindedness of the formal
lation and influx of migrants (Charman et al., 2019; economy entrepreneur, informal entrepreneurs hedge
Marx, Stoker, & Suri, 2019). Aside from multiple their bets by addressing day-to-day problems in their
FIGURE 3
Fragmentation at the Institutional Interface of an Informal Economy
Market Market
Profession 2
Profession 2
Profession 1 Religion 1
Religion 1
Profession 1
Community 2 Religion 2
Community 2
Community 1 Religion 3 Religion 2 Religion 3
Community 1
Low Fragmentation High Fragmentation

local environment. The result may be “an office em- In contexts with low incompatibility, market-based
ployee who also has a chicken farm and, as a side hus- norms, beliefs, and values are aligned with those from
tle, runs a car wash and a consultancy” (Weiss & nonmarket institutions. For instance, Weber’s (1958)
Weber, 2017: 374). This diversification of unregistered classic treatise on the Protestant work ethic illustrates
activities is not only a means to improve resilience to how religion enables wealth accumulation as a means
external shocks, but also a response to fragmentation to infer divine benediction and salvation. G€ um€usay
by crafting opportunities presented by disconnected (2015) similarly revealed how some Islamic holy texts
audiences. encourage individuals to engage in entrepreneurial
Accordingly, we contend that fragmentation of the activities such as opportunity pursuit and risk-taking.
institutional interface broadens an entrepreneur’s In another domain, Gras and Nason (2015) discussed
cultural toolkit and permits a practice of dispersed how certain family conditions enable entrepreneurial
growth; in other words, an expansion of economic creativity. In these examples, the prescriptions of
activity across several independent entrepreneurial nonmarket institutions—whether composed of reli-
endeavors that target different institutional audi- gious, familial, communal, professional, and political
ences. For instance, Charman et al. (2019) noted arrangements—may be aligned with those of market
how, in response to the fragmentation of South Afri- institutions.
can townships, entrepreneurs may operate multiple Conversely, in informal economies with high in-
outlets in different sectors and localities. This form compatibility, nonmarket norms and values conflict
of growth can be thought of as a form of individual- with those of the market. Numerous entrepreneur-
level micro-diversification in which the entrepre- ship studies fall within this group: for instance, Mair
neur pursues small-scale economic activities across et al. (2012) indicated how institutionalized gender
a diverse range of revenue generating activities. In roles in Bangladesh preclude market participation
fragmented institutional environments (Figure 3, for women. Godfrey (2011) provided an anecdote of a
right side), this type of growth represents a substan- Navajo medicine woman whose spiritual values align
tive form of cultural entrepreneurship that addresses with stability and small-scale survivalism while run-
different opportunities as they emerge, yet is none- ning counter to wealth accumulation. Meanwhile,
theless appropriate for disparate constituents. More Khavul et al. (2009) discussed how extended ties
formally stated, we posit: within the family engender obligations that constrain
growth of (informal) entrepreneurial endeavors. In
Proposition 2. The greater the fragmentation of insti- certain communities, growth and success are not nec-
tutions in an informal economy, the more likely that essarily viewed as the result of entrepreneurial effort,
inhabitant entrepreneurs will engage in dispersed
but, rather, of ill-gotten methods such as spiritual sor-
growth.
cery (Charman et al., 2019). These examples demon-
strate incompatibility between market and nonmarket
Incompatibility between Market and Nonmarket institutions regarding constituent norms, values, and
Institutions and Disguised Growth beliefs. Figure 4 illustrates informal economies with
low and high levels of institutional incompatibility.
Within any institution, normative and regulative Prior accounts of informal economy entrepreneur-
elements create social obligations for its members ship emphasize two resolutions to incompatibility
(Scott, 2014). In other words, even if the cognitive between market and nonmarket institutions. Entrepre-
elements are not internalized as taken-for-granted neurs can firstly attempt to “dis-embed” themselves
schema by entrepreneurs, the institution still estab- from their entrepreneurial identity or escape the do-
lishes prescriptions and proscriptions that deter- main in order to mitigate communal obligations and
mine legitimacy and appropriateness of behavior avoid the illegitimacy of wealth creation (Slade-
in the external environment (Suchman, 1995). The Shantz et al., 2018). Alternatively, policy-makers may
extent to which these norms from multiple institu- introduce market-supporting mechanisms from formal
tions align is an important dimension of institutional economies into informal economies, thereby offering a
complexity referred to as “incompatibility” (Raynard, means for these individuals to be “emancipated” from
2016). Within informal economies, we contend that their cultural constraints (de Soto, 2000).
incompatibility between market and nonmarket insti- We propose, in contrast, that nonmarket institu-
tutions provides an important source of variation tions may be impeding visible types of growth while
that is likely to impact how inhabitant entrepre- enabling others that are more concealed. Recent eth-
neurs grow. nographies and case studies of informal enterprises
FIGURE 4
Incompatibility at the Institutional Interface of an Informal Economy
Market
Market Market Compatible
Institutions
Institutions Market Incompatible
Political Political
Professional Institutions Institutions
Professional
Institutions
Institutions
Family Family
Community Institutions Community Institutions
Religious Religious
Low Incompatibility High Incompatibility
provide accounts of highly creative practices that façades in the townships of Cape Town to avoid a
hide growth from stakeholders within not only polit- “tall-poppy” syndrome:
ical but also familial, spiritual, or communal circles
To avoid criticism and resentment to accumulating
(Charman et al., 2014, 2019). We build on this line of
wealth, many township micro-enterprises adopt a
inquiry and suggest that some informal economy
strategy of “downwardly mobile” fronting to give an
entrepreneurs may undertake distinct, clandestine impression of shabbiness, in order to appear as eco-
actions to circumvent incompatibility within the in- nomic survivalists. Strategies of fronting align with
stitutional interface. Specifically, in contexts where the notion of Ubuntu which … holds that competition
market prescriptions are incompatible with those of and inequality are un-African virtues which under-
other institutions, we propose that informal economy mine traditional values of community and reciprocity.
entrepreneurs may employ disguised growth. Despite
Some entrepreneurs may also apply survivalist
the norms of religious, familial, communal, profes-
façades to their appearance, avoiding conspicuous
sional, and political institutions being incompatible
consumption by dressing down or driving modest
with growth, individuals may still be able to pursue
vehicles (Charman et al., 2019).
growth as long as they convey a (false) impression
In such circumstances, entrepreneurs may actively
of subsistence to external stakeholders. Such impres-
grow their entrepreneurial endeavor while presenting
sion management techniques (Elsbach & Sutton,
a symbolic “sameness” with survivalist businesses.
1992) align with what Oliver (1991: 154) labeled as
We conceptualize this practice as a substantive form
“concealment tactics [that] involve disguising non-
of cultural entrepreneurship: the practice of growth
conformity behind a façade of acquiescence.” From
is decoupled from the proscriptions around growth
an institutional perspective, entrepreneurs engaging
imposed from religious, familial, communal, profes-
in this decoupling practice do so as a means to insu-
sional, and political institutions. In this way, disguised
late those organizational activities that run counter to
growth emerges from a “compartmentalization” of the
institutional norms (Meyer & Rowan, 1977).
cultural toolkit, in a manner similar to that observed in
Disguised growth can certainly be driven by prag-
the institutional complexity literature (Kraatz & Block,
matic concerns; for example, avoiding attention from
2008; Oliver, 1991; Pache & Santos, 2010). This need
criminals who may seek to expropriate wealth
to conceal growth is important in situations in which
(Kistruck, Webb, Sutter, & Bailey, 2015) or from
market and nonmarket institutions are incompatible,
enforcement authorities who may raid informal busi-
but is less so in contexts wherein the prescriptions of
nesses or force them to pay taxes and bribes (Godfrey,
both are aligned. More formally stated:
2011). However, concealing activities are also meant to
signal institutional conformity: Charman et al. (2019: Proposition 3. The greater the incompatibility of
12.10), for example, described the use of survivalist market and nonmarket institutions in an informal
economy, the more likely that inhabitant entrepre- Slade Shantz et al., 2018). We still lack accounts of
neurs will engage in disguised growth. how community, family, political and religious
institutions—among others—enable exchange in
informal economies, even when legal and regulatory
DISCUSSION
institutions are absent or impotent (North, 1990). We
Understanding the Phenomenon of Informal acknowledge that nonmarket institutions may cer-
Economic Activity tainly constrain some types of growth, especially of
the visible type observed in formal economies sup-
Informal economies have recently garnered schol-
ported by market institutions. However, other types of
arly attention as a rich context for advancing man-
less visible growth, such as the dispersed growth we
agement and entrepreneurship research (De Castro,
Khavul, & Bruton, 2014; Godfrey, 2011; Khavul et al., theorize, may actually be facilitated by nonmarket
2009; Webb et al., 2009). However, they have been institutions. Importantly, this approach also recog-
predominantly portrayed as deficient or incomplete nizes that, just like their formal economy counter-
settings to be fixed with formalized legal institutions parts, informal economy entrepreneurs have agency
(Bothello et al., 2019). We argue that this ontological in crafting entrepreneurial initiatives from the
starting point has prevented a more comprehensive affordances in their institutional environment. Our
theoretical specification of informal economies on theoretical development therefore has important
their own terms. As Venkatesh (2008: 7) stated: implications for several areas of scholarship.
We cannot truly understand the “shady” economy Institutional Interfaces, Complexity, and
if we see it as a dirty, lawless world of violence and
Cultural Entrepreneurship
disrepute, one that tarnishes an otherwise pristine
sphere where everyone pays their taxes, obeys the By examining how informal economy institutions
laws, and turns to the government to solve disputes enable entrepreneurial action, our article also has
and maintain order. implications for theory on institutional interfaces,
We concur with this critique and orient our contri- institutional complexity, and cultural entrepreneur-
butions toward understanding how institutions that ship. We firstly extend the notion of institutional
are present within informal economies shape entre- interfaces: Mair et al. (2012) used the concept to
preneurial practice. By conceptualizing informal explain how organizations use institutional bits and
economies as “institutional interfaces” (Mair et al., pieces (Schneiberg, 2007) to address the market-
2012) where multiple market and nonmarket institu- level outcome of economic inclusion. By applying
tions interact, we embrace the vibrant array of institu- insights from institutional complexity, however, we
tions that constitute informal economies (Godfrey, allow for a more precise identification of how insti-
2011). We theorize how dimensions of institutional tutions interface along different dimensions, result-
complexity (Greenwood et al., 2011; Raynard, 2016) ing in various configurations. Further, we describe
shape the cultural toolkit of informal economy entre- how such configurations influence the availability
preneurs and thus the likelihood that they will engage and nature of cultural resources that entrepreneurs
in particular types of growth. Our shift away from have at their disposal and determine how they
examining growth in the informal economy at the firm assemble them in “varying configurations to solve
level of analysis allows for a broader assessment of different kinds of problems” (Swidler, 1986: 273)—
informal entrepreneurial activity undertaken by for example, fulfilling a desire to grow.
individuals. The overarching result is an approach Relatedly, our examination of informal economy
to informal economies based on institutional pres- entrepreneurial growth also enhances theory on insti-
ence that recognizes how entrepreneurs enact tutional complexity. The existing literature has pre-
growth in overlooked and unanticipated ways. dominately focused on growth as the outcome of a
We seek to advance a growing body of research market logic dominating, coexisting, or blending with
acknowledging the influence of nonmarket institu- nonmarket logics (Karplus, Geissmann, & Zhang,
tions in shaping informal entrepreneurial activity 2021; Thornton & Ocasio, 1999). Our approach also
(Peng et al., 2008; Peng et al., 2009; Saka-Helmhout allows for a different possibility: namely, that institu-
et al., 2020; Uzo & Mair, 2014). While revealing tional complexity may also shape the type of growth
many important dynamics, much of the literature that occurs. Informal economy entrepreneurs do still
focuses on how nonmarket institutions constrain or struggle with managing institutional complexity, but
suppress growth (Godfrey, 2011; Mair & Marti, 2009; also leverage complexity to pursue opportunities and
craft novel growth practices—something that has re- stakeholder impressions: for instance, controlling
mained underexplored in examinations of formal interests of Indonesia’s Salim Group mask connec-
economy firms. This provides an important insight tions with affiliates to avoid public scrutiny (Dieleman
into the way in which complexity not only constrains & Sachs, 2008); in the 1990 s, American brewer
but also enables entrepreneurial action. Anheuser-Busch distanced itself from craft brew
We also answer calls to expand the domain of subsidiaries to satisfy consumer demand for small-
cultural entrepreneurship, as Lounsbury and Glynn scale and local beer (Elzinga, Tremblay, & Tremblay,
(2019: 10) noted that the concept is a “scholarly idea 2017). Underground restaurant chefs use illusory tac-
that [can] account for [a] wider variety of socio- tics to perform an authentic experience for diners
economic processes and outcomes.” Cultural entrepre- with differing expectations (Demetry, 2019). Our con-
neurship research has largely focused on storytelling ceptual development may have generative links to
(Lounsbury & Glynn, 2001; Wry, Lounsbury, & Glynn, these instances of dispersion and concealment that
2011), including symbolic “growth stories” (Gehman are meant to mollify and manipulate the expectations
& Soubliere, 2017) meant to align with the prescrip- of critical stakeholders (Cho, Laine, Roberts, & Rodri-
tions of the institutional environment. We theorize gue, 2015).
how cultural entrepreneurship not only facilitates re- Implications for research design and empirical
source acquisition, but also actively shapes the prac- testing. Beyond conceptual contributions, we be-
tice of growth itself. The types of growth that we lieve that our theorization of informal economies
develop involve not only symbolic but also substan- opens new areas for research design, data collection,
tive actions that signal conformity or deviance within and methodology. Empirical investigation of infor-
institutionally complex environments, enabling the mal economies is highly challenging, especially
pursuit of individual aspirations. when reconceptualized as an institutional interface.
Unlike many market and legal institutions that are
Entrepreneurial Practices beyond Formalization putatively universal with a wide array of established
in Informal Economies indicators (Meyer & Sinani, 2009; Peng et al., 2008),
nonmarket institutions often operate on a more prox-
There is a substantial body of literature examining imal level, vary greatly from one context to the next,
the formalization of informal economic activity, and are difficult for outsiders to disentangle and
though with mixed results regarding the antecedents observe. These factors lead too many scholars to
and consequences of formalization (Assenova & opt for empirical convenience and simplicity over
Sorenson, 2017). Our framework helps redirect in- phenomenological fidelity (Bothello et al., 2019).
formal economy scholarship beyond this rather For these reasons, we have several complementary
narrow conceptual “solution” to the perceived impe- recommendations for future research attempting
diments of informal economies and focus on other empirical investigation.
distinctive (but less visible) types of growth in these First, despite the challenges to informal economy
settings. In doing so, we hope to catalyze exploration research in the management field, other disciplines
of growth and broader entrepreneurial behavior in have made considerable advancements in studying
informal economies, which often go overlooked. informality, pioneering practices that could be used
Indeed, the institutional environments of informal to support the testing of the propositions we develop
economies are likely to have impact across a variety in our framework. Geographers, for example, have
of entrepreneurial choices (Tolbert, David, & Sine, developed creative data collection approaches, such
2011): for instance, informal economy entrepreneurs as the “small-area census” (Charman, Petersen, Piper,
may differ in how they engage in differentiation, Liedeman, & Legg, 2015), which entails cataloging
innovation, or even the visibility of their entrepre- informal enterprises within an enclosed geographic
neurial activities. A deeper exploration of informal area, in order to understand contextual influences.
entrepreneurship may also help move beyond the These studies employ novel tools such as geographic
dominant and rather reductionist “necessity” versus tagging and photos that, when combined with sur-
“opportunity” entrepreneurship frame (Dencker veys and structured interviews, are more suited for
et al., 2021). capturing the types of growth that have thus far
Finally, while we develop the concepts of dis- remained obscured. Another notable innovation is
guised and dispersed growth for informal econo- the usage of satellite data on light intensity as a proxy
mies, there are implications for formal economies as for “true” economic growth (Henderson, Storeygard,
well. Corporations use similar tactics to manage & Weil, 2012; Medina & Schneider, 2019).
Secondly, there is a continued need for ethno- entrepreneurs can and often do grow, offers but a
graphic driven research in informal economies. first step; future research should expand upon this
Researchers unavoidably approach phenomena and base to develop better estimates of overall growth.
contexts with their own set of prior biases, which Importantly, we also do not claim these types to con-
can inhibit authentic understanding (Hamann, stitute an exhaustive repertoire: future research could
Luiz, Ramaboa, Khan, Dhlamini, & Nilsson, 2020). investigate additional types of growth, and even com-
However, ethnography allows researchers to “fade pare their effectiveness in achieving the growth
into the woodwork,” moving closer to grasping the aspirations of entrepreneurs. In doing so, it may be
nature of the institutional environment and making necessary to develop new measures of growth, as clas-
sense of local entrepreneurial practices. Aside from sic dimensions such as sales, employees, and assets
this, scholars may also partner with local researchers may not be as relevant in these contexts as in the for-
or data collectors who are embedded within, and mal economy.
have lived experiences of, their settings (Charman, Second, and relatedly, the types of growth we out-
Bothello, & Nason, 2021). Ethnographies and rich line are not mutually exclusive and hold potential
qualitative accounts have been instrumental in gener- for overlay. This is important, considering that the
ating theoretical insights that better capture the com- dimensions of institutional complexity we outline
plexity of informal economies (e.g., De Castro et al., are likely to be interrelated in particular informal
2014; Slade Shantz et al., 2018). economies. For example, if community, religious, or
Our framework also opens opportunities for lin- political institutions furnish opportunities—but also
guistic analysis. Cultural resources tend to be highly promulgate norms that are incompatible with firm-
complex, interconnected, and seemingly unstruc- level growth—informal entrepreneurs may be incen-
tured, which has traditionally made them challeng- tivized to engage in dispersed and disguised growth,
ing for quantitative analysis. Weber (2005) built whereby they decouple connections across firms in
upon the Swidlerian premise that cultural toolkits order to avoid detection and conceal nonconformity
are defined by language to demonstrate how culture (Oliver, 1991). These more intricate configurations
can be examined as discrete units through analysis of institutional complexity could be examined in
of semiotics. Discursive methods—for instance, par- terms of how they impact growth or other entrepre-
adigmatic clustering, semiotic squares, or content neurial actions.
analysis (Weber, 2005)—are useful for revealing the Third, while our institutional interface framework
constituent building blocks of cultural entrepreneur- is meant to capture the “informal economy” level of
ship, even if the outcomes are substantive, like analysis, the boundaries of informal economies can be
growth. Recent advancements in Latent Dirichlet difficult to delineate. For consistency, we mobilized
Allocation topic models are also likely to provide examples of informal economies that were largely
particularly useful means to capture institutional bound to a specific geographic locale (e.g., townships
arrangements by systematically analyzing language. in South Africa, Ghanaian rural communities, Argen-
Boundary conditions and future research. Given tinian urban markets, etc.), where we focused on
the striking diversity of the institutional environment exchanges between buyer and seller. We recognize,
of informal economies, our theoretical development though, that informal economic activity can be far
necessarily requires scope conditions. Our proposi- more amorphous in terms of geography (Godfrey,
tions are meant to initiate closer examination of the 2011), appearing at certain points along the supply
institutional arrangement of informal economies but chain (e.g., the use of undocumented labor) or as trans-
relaxing these boundary conditions may serve as fer- national industries (e.g., counterfeit clothing) (Abid,
tile ground for future theoretical development. Ahmadsimab, Ul-Haq, & Bothello, 2023). Relatedly,
First, although we focus on explaining certain while we focus on the salient and under-examined
types of growth in informal economies, we do not role of nonmarket institutions, informal economies
claim them to be characteristic of all informal entre- should not be viewed as wholly disconnected from
preneurs. We acknowledge that, as in the formal formal institutions, including legal institutions. The
economy (Delmar & Wiklund, 2008), entrepreneurial relationship may in fact be reactionary (Sassen, 1994),
goals are institutionally inscribed (Godfrey, 2011), where informal economy entrepreneurs choose to
with many entrepreneurs eschewing growth (or avoid operating within legal institutions (Webb et al.,
treating it instrumentally) in favor of nonfinancial 2009) that inhibit or encourage informal entrepreneur-
outcomes such as health and well-being (Sen, 1999). ial activity (Urbano, Aparicio, & Audretsch, 2019). We
Our article, in recognizing that informal economy require further work on the jurisdictional influence of
legal institutions and the complex relationship be- improving the conditions of marginalized popula-
tween formal and informal economies. tions. Our focus on informal economies in contexts
Fourth, we focus on how variation in institutional of poverty draws attention to the need for policy
environments influences entrepreneurial actions in measures that facilitate inclusive economic growth.
informal economies—in our case, types of growth. Further, how policy-makers and the public view
But there is also significant difference in how indivi- informal economies is a critical factor in productively
duals are socially situated. As a result, institutions channeling entrepreneurial activity. As Godfrey (2011:
are unlikely to apply equally to all individuals: some 266) remarked, “a rich understanding of the informal
may be more or less constrained or enabled by par- economy and how it can be used to create pathways
ticular institutions depending on their centrality in a out of poverty necessarily involves more than simplis-
network, power, or status (Batjargal et al., 2013; tic explanations such as ‘weak institutions.’” Our arti-
Greenwood et al., 2011). In particular, nonmarket cle responds to this call by proposing how presence—
institutions often shape the social identity distinc- from a variety of institutions—shapes entrepreneurial
tions between insider and outsider (Smith, 2005; activity in informal economies. In doing so, we hope
Yenkey, 2018). Future research should embrace to challenge conventional approaches that ignore or
idiosyncrasy in an individual’s position within the combat informal economic activity (e.g., by strictly
institutional structure of their informal economy enforcing regulations or coercing formalization). We
and examine how it influences their entrepreneurial hope to reorient public and policy discourse by pro-
outcomes. viding a more nuanced portrayal of the reality in infor-
Finally, we focus on explaining individual behav- mal economies that may aid policy-makers to establish
ior in the pursuit of growth. Yet, we recognize that practices that constructively interface with informal
much informal entrepreneurial activity occurs, in entrepreneurial activity. In particular, policy-makers
many situations, through communal arrangements. should be cognizant of how policy changes impact
Community-based enterprises (Peredo & Chrisman, the nature and composition of the institutional envi-
2006), microfinance circles (Seelos, Mair, Battilana, & ronment of informal economies. Efforts to change
Dacin, 2011), cooperatives (Slade-Shantz et al., 2018), immigration policy, for instance, are likely to change
and kibbutzim (Simons & Ingram, 1997) are all exam- not only human capital, but also reshape the cultural,
ples of collective entrepreneurial action built upon religious, and community-based composition of the
community, religious, and kinship arrangements. We institutional interface—by extension, changing how
hope that our shift from firm to individual level is entrepreneurs pursue growth.
generative for important future research that more Further, we provide insight into why intervention
thoroughly investigates how individuals aggregate efforts to formalize informal economic activity may
into more collective entrepreneurial arrangements. often fail. Such efforts primarily focus on imple-
Policy implications. Entrepreneurship is often menting formal market institutions (e.g., rule of law
touted as a meaningful economic development tool or strategic training) either to replace nonmarket
(Kistruck et al., 2011), though with mixed results constraints or without considering how existing
(Alvarez & Barney, 2014; Sutter et al., 2019). The cultural arrangements facilitate exchange in a less
relationship between growth undertaken by entre- visible way (Bothello et al., 2019; Sutter, Webb,
preneurs and economic prosperity should not be Kistruck, Ketchen, & Ireland, 2017). In addition,
taken for granted. Although growth in informal econ- market-prescribed strategies of firm-level growth
omies is hidden from taxation, it also provides mate- may not align with culturally informed preferences
rial and social benefit to those most in need. As a for dispersed individual entrepreneurial endeavors
whole, our analysis identifying growth types implies or collective entrepreneurial action. It is critical for
the need for more rigorous testing of whether growth development and aid interventions to more carefully
undertaken by entrepreneurs leads to broader eco- consider the presence and role of nonmarket institu-
nomic prosperity (Charman et al., 2021). In doing tions among the beneficiaries that they aim to serve.
so, it is important to recognize that there is a critical
difference between general economic growth and
CONCLUSION
inclusive economic growth. Economic growth gener-
ally may exacerbate wealth inequalities when gains Informal economies are far from voids: they are
flow primarily to already-privileged populations. vibrant arenas where individuals are actively engaged
Inclusive economic growth, in contrast, facilitates in improving their livelihoods. These contexts have
equitable access to opportunities, and is aimed at much potential to generate insight for management
and entrepreneurship research. We aim to animate Bruton, G. D. 2010. Business and the world’s poorest
understanding of informal economies first and fore- billion: The need for an expanded examination by
most by taking stock of the institutional fabric within management scholars. Academy of Management
which informal economy entrepreneurs operate. In Perspectives, 24: 6–10.
order to understand the entrepreneurial endeavors, Bruton, G. D., Khavul, S., & Chavez, H. 2011. Microlending
and indeed the behavior of informal economy entre- in emerging economies: Building a new line of inquiry
preneurs, we need a more comprehensive understand- from the ground up. Journal of International Busi-
ing of their complex institutional environments. The ness Studies, 42: 718–739.
dimensions of variation at the institutional interface Charman, A. J. E., Bothello, J., & Nason, R. 2021. Unveiling
(i.e., market jurisdiction, fragmentation, incompatibil- the informal economy. Stanford Social Innovation
ity) provide a framework for greater recognition of Review, 19: 61–63.
institutional differences across informal economies. Charman, A. J. E., Petersen, L. M., & Govender, T. 2014.
Our treatment of individual-level economic growth Shebeens as spaces and places of informality, enter-
offers a broader range of types of growth (direct, dis- prise, drinking and sociability. South African Geo-
persed, and disguised) that vary in terms of visibility graphical Journal, 96: 31–49.
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provides inspiration and a meaningful foundation to Township economy: People, spaces and practices in
further explore how entrepreneurial action unfolds in the making of informal businesses. Pretoria, South
a manner that is not reliant on Western biases and Africa: HSRC Press.
assumptions of what “should” exist. Charman, A. J. E., Petersen, L. M., Piper, L. E., Liedeman,
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Nason Bothello AMR2023 Far From Void How Institutions Shape Growth in Informal Economies

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r Academy of Management Review

2023, Vol. 48, No. 3, 485–503.

FAR FROM VOID: HOW INSTITUTIONS SHAPE

Legal Market Legal

Central conceptualization Institutional void Institutional interface

Professional Professional Family

Political Religious Political Religious

Low Market Jurisdiction High Market Jurisdiction

Low Fragmentation High Fragmentation

Low Incompatibility High Incompatibility

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