An indicator framework for assessing innovation capabilities in the informal sector

Increasingly, the potential of the informal sector in offering alternative development pathways is highlighted. A challenge is to understand how informal enterprises build innovation capabilities that break necessity-driven path dependencies. This paper proposes an empirically-grounded, multi-dimensional indicator framework to assess innovation capabilities in the informal sector. The research draws on a survey of 996 informal enterprises and in-depth qualitative research in South Africa. The indicator framework includes five broad dimensions: knowledge integration, institutional work, modes of innovation and learning, sophistication of innovation, and business evolution. Cluster analysis was used to empirically assess the value of the indicator framework. Four clusters of businesses were identified, distinguished by their use of symbolic knowledge and formal know-how gained through work experience, learning-by-interacting, and proactive innovation practices. The aim is to contribute to efforts towards developing indicators that broaden and open-up debate, and bring attention to an area not sufficiently covered in mainstream measurement.