Far from Void: Institutional Richness and Growth in the Informal Economy

Contexts dominated by informality are often characterized by their perceived deficiencies, as “institutional voids” lacking legal rules of the game that would otherwise allow inhabitant entrepreneurs to flourish. We challenge this perspective by exploring how the presence of informal institutions rather than the absence of formal institutions shape growth in the informal economy. We contend that local cultural institutions not only constrain but can also enable growth, often in ways that are hidden to observers. Drawing on an institutionalist perspective, we theorize that variance in the meso- institutional environment (where informal institutions reside) moderates the breadth of the “cultural toolkit” of local entrepreneurs, which in turn affects their ability to craft legitimate growth templates. Specifically, we theorize that the permeability, growth stigmatization, and diversity of informal meso- institutional environments induce local growth-oriented entrepreneurs to respond by enacting a specific growth template – i.e. a novel strategy combining multiple cultural resources. By linking features of the meso-institutional environment with strategies of growth-oriented informal entrepreneurs, we develop a framework that facilitates understanding of the unique pressures and rationale responses which underlie growth in the vibrant world of informal economies.