Informal Economy, Formal Sector, Globalization, International Business, Economic Development.

Contrary to the conventional belief of diminishing presence of informal entities in a more globalized world, there has been an upsurge in the size of the informal economy in the recent decades. The article summarizes the factors behind the existence and persistence of such economy and explains the advantages of the informal economy in reducing transaction costs, in sidestepping the bureaucratic obligations, and in complementing the formal economy. The paper refutes the idea that the informal firms act as a weak substitute for the formal firms. The paper uses anecdotal evidence and highlights the linkages between the two sectors.