When you study international business, you learn about formal economy impact: stock exchanges, patents, banking contracts. The message is clear—success comes from following rules, using standardized contracts, and working within official frameworks.
But after 20 years working in Southeast Asia, especially Hanoi, Vietnam, I discovered something textbooks never mention: we’re only seeing half the picture. Beneath the formal economy—the banked, regulated, official side—is the informal economy. It’s cash-based, unbanked, and unregulated. Most of the world’s workforce depends on it, yet it’s barely discussed in business education.
Table of Contents
- What Is the Informal Economy Impact?
- The Three Main Theories Of the Informal Economy Impact
- Eye-Opening Numbers Of Informal Economy Impact
- Why Business Schools Must Pay Attention
- A Unique Perspective from Mondoro
- Deep Dive Podcast On The Global Economy Impact
- Related Questions
If you ignore the informal economy, you’re not really doing international business. You’re just a corporate tourist.
For example, when my company Mondoro sources lacquerware from rural Vietnam, we aren’t working with registered companies. We’re partnering with families, relying on their reputation and skills—not paperwork.
I’ve seen the creativity and adaptability that thrive outside the formal system, but also the challenges: lack of legal protection, limited access to capital, and barriers to joining global markets.
The informal economy isn’t a fringe issue. It’s the missing puzzle piece in international business.
What Is the Informal Economy Impact?
The informal economy goes by many names: Shadow Economy, Street Economy, System D.
It includes all economic activities outside government regulation—unrecorded, untaxed, and unregulated. But it’s not just about crime. Most informal businesses are honest, small-scale entrepreneurs.
Think about:
- The street vendor in Jakarta selling food from a cart.
- The textile weaver in Accra working without a license.
- The freelance programmer in Utah (the gig economy).
- The artisan group in rural Vietnam using ancestral skills, not corporate paperwork.
Often, entrepreneurs aren’t hiding—they just can’t afford the time or money needed to formalize. In many places, being informal isn’t a choice; it’s survival.
The Three Main Theories Of the Informal Economy Impact
Business schools often treat the informal economy as a problem to be solved. But there are three main theories about why it exists and why we need to study the infomral economy impact:
1. Dualist Theory:
This theory says informal businesses exist because the formal sector can’t grow fast enough. As countries develop, the informal sector should disappear. But in Vietnam, I’ve seen the informal economy adapt and become essential partners to formal businesses.
2. Structuralist Theory:
Here, the informal and formal economies are connected. Big companies benefit from cheap, informal labor—think gig economy platforms like Uber or unregulated subcontractors in supply chains.
3. Legalist Theory:
Economist Hernando de Soto argues the informal economy is full of entrepreneurs making rational choices. Formalizing is too expensive or bureaucratic, so people rely on trust and social networks instead of legal contracts.
Eye-Opening Numbers Of Informal Economy Impact
This isn’t just theory—the numbers are huge:
- 60% of the world’s workers are in the informal economy (ILO).
- In developing countries, it can be up to 90%.
- The informal economy generates 15–25% of global GDP (IMF, World Bank).
System D is vibrant and resilient, surviving crises when formal institutions fail. Ignoring it isn’t smart—it’s a huge mistake.
Why Business Schools Must Pay Attention
Business schools aim to prepare students for global markets, but current curriculums fall short.
The future isn’t just corporate dominance—it’s agile, networked systems bridging compliance and reality.
Graduates may need to:
- Source ethically from workshops without paperwork.
- Pay securely in cash-based environments.
- Set quality standards based on trust, not audits.
- Help micro-entrepreneurs formalize without crushing them.
Ignoring the informal economy means missing out on risk assessment, cultural intelligence, and real-world resilience.
A Unique Perspective from Mondoro
The informal economy is both sun and shadow—vibrant and resilient, but also vulnerable.
At Mondoro, we work to bridge this gap, building stable, ethical relationships that work for both makers and buyers.
The informal economy isn’t going away. It’s a permanent, powerful force in global business.
The real question: Will the next generation of business leaders learn to see it, or stay blind to the reality driving most of the world’s trade? It’s time to fit this missing piece into the puzzle.
Deep Dive Podcast On The Global Economy Impact
Check our podcast on the Global Economy Impact.
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