WPS5866
POLICY RESEARCH WORKING PAPER                5866
Is Informality Welfare-Enhancing
Structural Transformation?
Evidence from Uganda
Louise Fox
Obert Pimhidzai
The World Bank
Africa Region
Poverty Reduction and Economic Management Unit
October 2011


POLICY RESEARCH WORKING PAPER 5866
Abstract
While Africas recent decade of growth and poverty              level economic activities into livelihoods based on
reduction performance has been lauded, concern has              individual wage and salary employment away from the
been expressed regarding the structure of this growth.          household in one leap-this process takes generations.
In particular, questions have been raised about whether         The intermediate step is the productive informal sector. It
the growth is based on a commodities boom, or whether          is income gains at the household level in this sector that
it is the beginning of a structural transformation that         fuel productivity increases, savings, and investment in
will lift workers from low-productivity jobs into higher-       human capital in this sector. Ensuring that most households
productivity ones. Macro evidence has suggested that            are able to diversif their livelihoods into the non-farm sector
the structural transformation has not started. But              through productive informality not only increases growth,
macro analysis misses the evidence that the process of          but also allows the majority of the population to share in the
transformation has started, because this process begins at     growth process. This paper illustrates this point with the
the household level. Household livelihoods do not move          case of Uganda which followed this path and experienced
from ones based on subsistence farming and household           two decades of sustained growth and poverty reduction.
This paper is a product of the Poverty Reduction and Economic Management, Africa Region. It is part of a larger effort by
the World Bank to provide open access to its research and make a contribution to development policy discussions around
the world. Policy Research Working Papers are also posted on the Web at http:/lecon.worldbank.org. The author may be
contacted at ifox@worldbank.org.
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names oftheanchors andshouldbe cited accordingly. Tehfindings, interpretations, and conclsions expressed in thispaper are entirely those
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its affiliated organizations, or those ofthe Executive Directors ofthe World Bank or the governments they re resent.
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