The APEC Economic Policy Committee released the APEC Economic Policy Report (AEPR) 2025, titled “Structural Reforms to Increase Participation in the Formal Economy”. The report analyzes the root causes of persistence in the informal sector across member economies and offers strategic policy recommendations to enable a smooth transition into formalization.
Key Takeaways
- Scale of Informal Economy: Informal output accounts for over 30% of official GDP in several developing member economies, with informal employment rates reaching 81.2% in Indonesia, 72.1% in Peru, 67.7% in Viet Nam, and 63.3% in Thailand. Conversely, industrialized economies maintain lower informal output levels (e.g., 8.5% in the U.S.).
- 4 Typologies of Informality:
- Subsistence: Survival-driven actors whose low productivity makes formalization unaffordable.
- Parasitic: Productive firms voluntarily evading taxes and regulations.
- De Soto View: Actors willing to formalize but blocked by bureaucratic hurdles and excessive costs.
- Structural Gaps:Workers excluded due to legal vacuums (e.g., gig economy workers).
- Root Causes: Weak governance, human capital deficiencies, heavy regulatory/tax burdens, and limited access to finance and markets.
Core Recommendations
- Strengthen Governance & Digitalize: Streamline government processes using digital platforms and improve rule of law enforcement.
- Build Human Capital: Implement targeted training programs and digital/business skill development initiatives.
- Enhance Formalization Value:Provide tangible incentives (preferential tax schemes, extended social security) so formal benefits outweigh costs.
- Expand Financial & Market Access: Offer credit guarantees, alternative financing, and facilitate public procurement opportunities for MSMEs.
https://www.apec.org/publications/2026/02/2025-apec-economic-policy-report