Drivers of Informal Sector Participation of Small and Medium Enterprise in Ghana

Abstract The informal sector of Ghana has been growing amidst the recent economic development in this country. The study investigated the drivers of informal sector participation by SMEs in Ghana and made use of a Chi-square statistical methodology to analyze the drivers of SME participation in the informal sector of Ghana. Analyses from the study showed that gender can be deemed as a driver for SME participation in the informal sector of Ghana. Gender was significant at 0.012 with registration of business enterprise and 0.055 with tax obligation of respondents. The educational level of SME operators had an impact on registration and tax obligation and therefore can be deemed as a driver of SME participation in the informal sector of Ghana. However, the level of education was insignificant to registration and tax obligation but had a strong correlation to these variables. The study also showed that women are more likely to participate in the informal sector of Ghana as compared to men and also that there is a high tendency of not paying tax among SME operators in the informal sector of Ghana. A very low educational level among SME participants was recorded with over 60% of the respondents not having any formal education. Based on the findings of the study, a country-wide research can be done to ascertain the socio-economic determinants of informal sector participation in Ghana. Also, the study highly recommends policies that can harness the usefulness of informal sector.