Integrating Theories on Informal Economies: An Examination of Causes of Urban Informal Economies in China

Abstract

Rapid urbanization has seen a concurrent growth of informal economies, which play an important role in alleviating urban unemployment and poverty. Following international efforts to integrate divergent theories on informality, this paper examines the causes of urban informal economies in China by deploying a panel data regression model that considers multiple explanatory factors informed by these theories. Our estimation based on the latest China Population Census shows that the size of urban informal employment in China reached 215 million and 22% of gross domestic product (GDP) output share was from urban informal economies. Our model reveals that the causes of urban informal economies in China are mainly associated with the stages of economic development, tertiarization of industries, unemployment, rural-to-urban migration, and globalization of urban economies. This paper adds evidence from the Chinese context to the emerging argument that informal economies cannot be fully explained by each mainstream informality theory, suggesting that these theories should be seen as complementary rather than opposing alternatives. The paper concludes with policy implications for urbanization in China.