Informality and Total Factor Productivity in Kenya
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Date
2022
Authors
Opondo, Mary Awuor
Etyang, Martin N.
Ayieko, Onono - Okelo Perez
Journal Title
Journal ISSN
Volume Title
Publisher
IPRJB
Abstract
Purpose: The Kenyan economy is largely informal. The objective of the study was to
establish the effect of size of the informal sector on total factor productivity in the country.
Methodology: The study was based on the dualist theory of the economy. Data covering the
period 1974 to 2016 was sourced from government publications (Economic Surveys and
Statistical Abstracts), the Global Financial Development Database and the World
Development Indicators. A growth accounting exercise was conducted using the
Cobb-Douglas production function based on the Solow growth model. This enabled the
decomposition of output growth to the contributions of labour and capital with a residual,
commonly referred to as the total factor productivity which was the dependent variable in the
study. The study was non-experimental and utilized a longitudinal research design using
macro-level data thus limiting the possibility of data manipulation. Various theoretically and
empirically recognized determinants on TFP were included as control variables. The analysis
was conducted using ordinary least squares.
Findings: The findings show that the size of the informal sector has a negative and
statistically significant effect on total factor productivity in Kenya. Given the large informal
sector, the study concluded that there is need to increase productivity of the sector in the
country for improved economic performance.
Unique contribution to theory, practice and policy: From the study findings, the informal
sector has a negative and statistically significant effect on total factor productivity in Kenya.
The study recommends the development and implementation of policies to enhance
productivity in the sector. These include market and technological development, improved
infrastructure and access to credit facilities.
Description
Article
Keywords
Informal Sector, Total Factor Productivity (TFP), Economic Growth
Citation
Opondo, M., Etyang, M., & Ayieko, O. . (2022). INFORMALITY AND TOTAL FACTOR PRODUCTIVITY IN KENYA. International Journal of Economics, 7(1), 1 – 18. https://doi.org/10.47604/ijecon.1534