Finding the needle in the haystack: The most robust correlates

Infrastructure weaknesses create an additional obstacle to human capital accumulation and job creation, entrenching informality (Vorisek and Yu 2020). Lack of energy and communications infrastructure limits access to more and better job opportunities and slows productivity gains from digital technologies (Zaballos, Iglesias, and Adamowicz 2019). Poor transportation networks restrict factor mobility and market access, thus slowing productivity growth.24 Weak within-city transportation networks prevent workers from accessing formal employment opportunities (Zarate 2019). Sanitation and clean water. Greater informality is associated with more limited access to sanitation facilities and clean water (figure 4.8). In EMDEs with above-median informality, only about 55 percent of the population has access to basic sanitation services—about 30 percentage points less than in EMDEs with below-median informality. Whereas almost all people in EMDEs with below-median informality have access to clean drinking water, this essential infrastructure service is available to less than 80 percent of the population in EMDEs with above-median informality.

Access to energy and information and communication technology infrastructure. Access to infrastructure services such as electricity, clean fuels, the internet, and mobile broadband is more limited in EMDEs with above-median informality. As shown by the latest available data, about one-third of people living in EMDEs with above-median informality lacked access to electricity, whereas almost all in EMDEs with below-median informality had such access. The share of the population with access to clean fuels in EMDEs with above-median informality is about half of the share in EMDEs with below-median informality. Access to the internet and mobile broadband was available to 30-40 percent of the population in EMDEs with above-median informality—less than three-fifths of the share in EMDEs with below-median informality.

Road access. Despite progress made in recent years, road access remains more limited in EMDEs with above-median informality. The latest data show that only about 15 percent of roads were paved in EMDEs with above-median informality—one-third of the share in EMDEs with below-median informality. This could in part reflect higher costs of road construction in EMDEs with more pervasive informal sectors: on average, road construction costs amounted to $0.6 million per kilometer in EMDEs with abovemedian informality—significantly higher than the cost in EMDEs with below-median informality, by $0.2 million per kilometer.

The analysis so far has considered individual correlates of informality in isolation. This section aims to identify the most robust correlates of informality via a BMA approach.

24 Banerjee, Duflo, and Qian (2020) find that proximity to transportation networks have a moderately sized positive causal effect on per capita GDP levels across sectors. De Soyres, Mulabdic, and Ruta (2020) and Francois and Manchin (2013) confirm the trade impact of transportation infrastrucutere.