Informal Entrepreneurship in Kosovo: An Institutionalist Approach

Abstract

Informal entrepreneurship challenges sustainable economic performance and is a barrier to productive entrepreneurship. In this context, the level of development of formal and informal institutions and their impact on informal entrepreneurship is crucial. This chapter examines the informal sector entrepreneurship in Kosovo using institutional theory lenses. Using a survey with 500 owners/managers of private companies, the study finds that the service industry has the highest participation in the informal economy compared to other sectors. On average small firms, compared to larger ones, report a higher percentage of unreported incomes. Our findings also suggest that when informal entrepreneurs perceive penalties for tax avoidance from tax authorities as high, they tend to have higher compliance with reporting their income. In addition, our findings indicate that the higher the vertical (trust in formal institutions) and horizontal distrust (trust in business partners), the higher the involvement in the informal economy. The chapter concludes with some policy implications for tackling the informal economy in Kosovo and similar institutional contexts.

Citation

Mustafa, I., Pula-Shiroka, J., Krasniqi, B.A., Ramadani, V. and Kryeziu, L. (2023), "Informal Entrepreneurship in Kosovo: An Institutionalist Approach", Ramadani, V., Kjosev, S. and Sergi, B.S. (Ed.) Entrepreneurship Development in the Balkans: Perspective from Diverse Contexts (Lab for Entrepreneurship and Development), Emerald Publishing Limited, Leeds, pp. 151-169. https://doi.org/10.1108/978-1-83753-454-820231009