This paper examines the determinants of the decision of owners of small enterprises in Ghana to
participate in the informal sector at start-up. For enterprises participating in the informal sector, the
paper evaluates whether there are linkages with formal sector enterprises, and the determinants of
the linkage. Data for the analysis is from the 2013 World Bank Enterprise survey. Using binary
choice models, it is evident from the analysis that the informal sector in Ghana is dominated by
people who have low levels of education, and hence, do not have otherwise employable skills.
Undertaking economic activities in the informal sector becomes a means to survival, and not
necessarily an attempt to evade compliance with formal sector regulations. The challenge to policy
makers in Ghana is to find the right balance between policies that reduces the costs to enterprises of
participating in the informal sector, whiles increasing the benefits for participating in the formal
economy.