Motives of Entrepreneurs in Entering the Informal Economy using the Global Entrepreneurship Monitor (GEM) Data

The GEM 2013 Adult Population Survey (APS) conducted in the Philippines revealed that out of the 677 owner-manager respondents, 293 or 43% had not registered their business with the Department of Trade and Industry (DTI), which handles business name registration as the initial step for entering the formal economy. According to the Department of Labor and Employment’s (DOLE) 2016 report (as cited by Pasion, 2017), the informal sector employs 15.6 million of the Filipino workers which comprise 38% of the total working population. This implies that a large number of informal entrepreneurs employ these people to help them run their business operations. As for its impact on the Philippine’s economy, it accounts for 61% of the country’s Gross Domestic Product (GDP) in 2015 (DOLE, 2016). The study examined the motives of the informal entrepreneurs’ unregistered businesses using the GEM APS data and employing a multinomial logistic regression approach due to the dichotomous nature of the dataset. The significant variable for deciding to be informal entrepreneurs is necessity-driven with no other choice for work as the major motivation and goal of being entrepreneurs. It was also revealed that socio-demographic characteristics (such as age, gender, education, and marital status) exert significant interaction effect on the relationship of urbanization and the decision to enter the informal economy. The average income of the entrepreneur also increases the likelihood of registering the business. In general, entrepreneurs will not engage in informality if they receive adequate support, resources, and opportunities. Informal entrepreneurs simply need guidance and awareness. By availing of the entrepreneurship programs, Filipinos can have the opportunity to uplift their living conditions; and as a result of rising poverty incidents, it can be deduced that addressing these concerns is necessary.

Keywords: Informal economy, informal entrepreneurship, necessity-driven, opportunity-driven, urbanization, ease of doing business, entrepreneurial role model, socio-demographic characteristics

JEL classifications: E26, J46, L26, O17