An investigation of determinants of growth in Nigeria’s informal sector: A case study of Lagos State (2000–2020).
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Background of the study:
The informal sector in Nigeria constitutes a major share of economic activity, especially in urban hubs like Lagos State. Over the period 2000–2020, this sector has evolved amid rapid urbanization, population growth, and changing socio‐economic dynamics. Factors such as entrepreneurial capability, access to microfinance, digital technology adoption, and regulatory flexibility have been critical determinants of its growth. In Lagos, the informal sector not only provides livelihood for millions but also contributes significantly to GDP. However, growth within this sector is influenced by several interlinked variables including educational attainment, market accessibility, infrastructural availability, and government policies that often oscillate between support and regulation. Recent studies underscore that while the informal sector benefits from lower entry barriers and flexible operating conditions, challenges such as limited access to formal credit, poor business registration practices, and weak institutional support persist (Adeyemi, 2023). Furthermore, technological innovations and digital platforms are gradually reshaping business operations, offering new opportunities for productivity gains, yet these innovations are not uniformly adopted due to literacy and infrastructural constraints (Chinwe, 2024). Thus, a critical evaluation of the determinants driving informal sector growth in Lagos is vital to inform policies that can harness its potential while mitigating associated vulnerabilities (Ibrahim, 2025).
Statement of the problem:
Despite its significant contribution, the informal sector in Lagos suffers from chronic issues such as inadequate access to formal finance, regulatory ambiguities, and infrastructural deficits. These factors have hindered consistent growth and limited opportunities for innovation, leaving many entrepreneurs vulnerable to economic shocks (Adeyemi, 2023; Chinwe, 2024). The gap between policy intentions and actual support for informal enterprises continues to widen, necessitating a thorough investigation into the determinants that affect growth in this sector.
Objectives of the study:
- To identify key determinants influencing growth in the informal sector.
- To analyze the interplay between access to finance, technology, and regulatory factors.
- To propose policy recommendations to support sustainable growth.
Research questions:
- What are the main determinants of growth in Lagos’s informal sector?
- How do financial access and technology adoption affect informal enterprises?
- What regulatory improvements can stimulate sector growth?
Research Hypotheses:
- Enhanced access to microfinance positively influences informal sector growth.
- Technological adoption significantly boosts operational efficiency.
- Regulatory clarity correlates with higher entrepreneurial performance.
Significance of the study:
This study is significant as it provides critical insights into the drivers of growth in Nigeria’s informal sector, which is vital for job creation and economic resilience. The findings will inform policymakers and stakeholders on designing targeted interventions that enhance productivity, reduce vulnerabilities, and foster inclusive economic development in Lagos (Ibrahim, 2025).
Scope and limitations of the study:
This study is limited to the determinants of growth in the informal sector in Lagos State, focusing on variables such as finance, technology, and regulation.
Definitions of terms:
- Informal Sector: Economic activities that are not regulated by formal institutions.
- Microfinance: Small loans and financial services provided to low-income entrepreneurs.
- Regulatory Flexibility: The ability of policy frameworks to adapt to informal market needs.
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