This study investigates the empirical relationship between the level of urbanization and size
of the informal economy using cross-country datasets proxying GDP and employment
shares of urban informal sector. Our estimation results indicate that there is an inverted-U
relationship between informality and the level of urbanization. That is, the share of the
informal sector grows in the early phases of urbanization due to several pull and push
factors; however, it tends to fall in the latter phases. We also show that factors like level of …