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The study presents considerations for African countries that build off of Crump, Hill, and Taylor (2017). In that study, Crump et al. (2017) argue and present empirical evidence to support the notion that rates of black entrepreneurship (measured by black business ownership) in the U.S. currently presented in entrepreneurship literature are misleading and understated. Once formal and informal economy are considered together, the authors propose that entrepreneurship rates of blacks drastically increase, and likely surpass many other groups. This exploratory study similarly argues and presents evidence that actual rates of business ownership and entrepreneurship derived from formal economy activities in Africa likewise understate the actual rates of entrepreneurship and business ownership there. This study also shows that there are many more advantages to operating in the formal economy than there are to be operating in the informal economy. A tool is provided that can aid entrepreneurship educators to highlight some hidden advantages and disadvantages to people choosing to operate in either economy. Corresponding author: Micah E. S. Crump Email address for corresponding author: mcrump@mec.cuny.edu First submission received: 30th April 2018 Revised submission received: 20th November 2018 Accepted: 30th November 2018 Introduction 1.1 Understated Black Entrepreneurship Rates Crump, Hill, and Taylor (2017) argue that in the United States the rate of black entrepreneurship, measured by black business ownership, currently presented in the entrepreneurship literature is misleading and understated. The extant findings in the entrepreneurship literature indicate that blacks in the U.S. have the lowest rates of established business ownership at just four percent (Fairlie and Meyer, 1996, 2000; Fairlie and Robb, 2007) while also having the highest rates of entrepreneurial propensity, interest, and nascent entrepreneurship (Köllinger and Minniti, 2006; Walstad and Kourilsky, 1998). This rate is one third that of white established business ownership which is 12 percent, and this one-to-three International Journal of Business and Economic Development, Vol. 6 Number 3 November 2018 www.ijbed.org A Journal of the Academy of Business and Retail Management (ABRM) 16 percentage ratio has remained constant for more than the past 100 years (Bates, 1996; Fairlie, 1999; Fairlie and Meyer, 1996, 2000). The literature also shows that blacks in the U.S. are unique relative to most other major racial and ethnic groups studied in the literature (Bradford, 2003; Butler, 1991; Hout and Rosen, 2000; Singh, Crump, and Zu, 2009). They are likely to engage in entrepreneurial activities differently than others (Crump 2013; Crump et al., 2017). Most of the findings on them relate to entrepreneurs who operate registered businesses in the formal economy. This led Crump et al. (2017) to question if the exceptionally low rates of black business ownership in the U.S. relative to non-black population groups there result primarily from a measurement issue. From the literature, the researchers hypothesized that certain forces act greater on blacks relative to non-blacks leading blacks to operate businesses in the informal economy at a significantly higher rate (see Crump 2013 for a more detailed explanation). Given the challenges of measuring informal economy activity (Macias and Cazzavillan, 2010; Schneider, 2005a, 2005b) among racial and ethnic groups, Crump et al. (2017) analyzed indirect measures and found that as the percentage of black population density increases in areas in the United States, those areas are more likely to contain a higher proportion of entrepreneurs operating in the informal economy. The researchers further established an Informal Economy Index (IEI) that can be used to measure the level of a city’s informal economy activity based on its percentage of black population. Crump et al.’s (2017) IEI supports their proposition that the well-established findings surrounding the underrepresentation of blacks in entrepreneurship compared to other groups diminish when the informal economy is factored into consideration. Once formal and informal economy are considered together, the authors propose that the sum of entrepreneurship rates of blacks drastically increase and likely surpass many other groups who operate in both economies. Similarly, actual rates of business ownership and entrepreneurship derived from formal economy activities in Africa likewise may understate the actual rates of entrepreneurship and business ownership there. The implications of understated entrepreneurship rates among a population group may carry severe negative consequences. Such consequences may be experienced by the group, or by other affected outside groups and the broader community, society, and economy. Examples include prospective suppliers, partners, and investors who forego opportunities because the opportunities remain hidden. Additional groups include policy-makers, government officials, and grant funding institutions that divert resources elsewhere because of distorted perspectives on the actual entrepreneurial opportunities that exist among these hidden entrepreneurs. If systemic forces act more strongly on any particular ethnic, racial, or national group to understate that group’s entrepreneurship rates, then research efforts to reveal these hidden forces should prove a worthwhile undertaking. 1.2 Aims of this Research We believe the extent to which geographic areas marked by high black population density correspond to increasing levels of informal economy activity compared to geographic areas of lower black population density is an interesting empirical question. Countries like Brazil and Guyana in South America, and many countries throughout the Caribbean and Africa have high concentrations of black population density and are therefore ideal for such investigation. Thus, one aim of this exploratory study is to contribute to a foundation that argues for such investigation beginning in countries in Africa. We begin this endeavor by investigating whether any adverse impacts stemming from an underestimation of black entrepreneurs in the U.S. likewise relate to black entrepreneurs and business owners in Africa whose entrepreneurship rates may also be largely understated. A second aim of this study is to explore any importance to policymakers and educators in both Africa and in the U.S. teaching entrepreneurs and business owners about International Journal of Business and Economic Development, Vol. 6 Number 3 November 2018 www.ijbed.org A Journal of the Academy of Business and Retail Management (ABRM) 17 differences and trade-offs of operating in either the formal or informal economy. Finally, we hope that this study contributes to a growing body of work that aims to increase any suppressed rates of entrepreneurship among blacks both in the U.S. and in African nations. Literature Review 2.1 What is the Informal Economy? The informal economy is difficult to clearly define (Chen, 2012; Macias and Cazzavillan, 2010; Schneider, 2005a). Yet, it is an economy that is active in all countries around the world (Schneider, 2002 and 2005b), and is increasing (Murkherjee, 2016; Schneider, 2005b). Murkherjee (2016) presents a nice typology of works that illuminate this economy. In many developing nations, this sector accounts for more than half of all economic output (Godfrey, 2011). Chen (2012) shows how four different schools of thought (Dualist, Structuralists, Legalists, and Volunteerists schools) distinctively view and define this economic sector differently than each other. The International Conference of Labour Statisticians (ICLS) defines the informal sector as employment and production that takes place in unincorporated small and/or unregistered enterprises and includes all types of informal employment both inside and outside informal enterprises (Chen, 2012). This informal economic sector is comprised of several sub-dimensions that are easier to define. Some researchers partition the informal economy based on illegal versus legal activities, overlaid against illegitimate versus legitimate activities (e.g., Crump et al., 2017; Schneider, 2005a; Williams and Shahid, 2016). For our current discussion, we focus on the dimension that consists of business trade activities that would otherwise be lawful if the activities were taxed, licensed, regulated, and recorded. 2.2 What Causes People to Choose the Informal Economy Option? Many forces lead people to operate in the informal economy, such as high unemployment, regulation, corruption, taxation, administration, and low salary levels and quality of public goods such as infrastructure (DeSoto, 1989; Dreher and Schneider, 2010; Johnson et al., 1998; Kaufmann, 1997; Khavul, Bruton, and Wood, 2009; Maloney, 2004; Schneider, 2005a; Shleifer, 1997; Shleifer and Vishny, 1993; Shleifer and Vishny, 1994; Shleifer and Vishny, 1998; Schuck and Litan, 1987; Williams and Round 2008). In nations where, low contract enforcement and inefficient institutional environments abound, potential entrepreneurs are pushed into the informal economy (Mukherjee 2016). People with high income levels choose the informal economy option out of having the discretion to run a business or not to run a business as a secondary source of income (Williams, 2008; Williams and Round, 2010). High income people also choose this option to increase wealth, business acumen, and access to resources (Webb et al., 2009), to escape corruption and bribes (Williams and Round, 2008), and to exploit opportunities from pre-existing formal employment (Williams, 2008; Williams, 2010; Williams and Nadin, 2010). People with middle income levels choose to operate in the informal economy also out of choice (Williams and Round, 2010, 2007), for hobby/personal interest reasons (Williams and Round, 2007), and to reduce risks with formal employment (Williams and Round, 2007

Informal economy as a cause for understating actual rates of entrepreneurship among blacks in the U.S. and in Africa