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D6.2 Summary findings of the third economy as an alternative? Social networks and informality

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This report summarizes numbers of studies on the theme of social networks and informality in developing countries. All studies’ task aims at understanding to what extent and why different social networks may lead to different informal businesses outcomes, and how social network create the resilience in the informal sector. Furthermore, some tasks also try to analyse the dynamics of the informal sector and to identify the mechanism at stake, which entail the formalization of some units or the relationship between informality and poverty in some countries. The collection of research results highlights the important role of social networks in terms of credit access, functioning of household businesses, hiring labour and coping strategies of household businesses in uncertainty situations. Moreover, through membership in social networks many entrepreneurs seem to be able to informally access production factors as it enforceable trust prevails.

From the policy perspective, results call for supporting of public policies to mitigate the negative consequences of the prevalent use of social networks in terms of inequality in opportunities. Expanding the coverage of social protection system including insurance against risks should be a major concern for public policy. Although social networks facilitates household business in access both formal and informal credit, policy should be directed towards strengthening the formal credit market and improving access to this market particularly for vulnerable groups namely small, informally operating entrepreneurs or those who have little collateral.