As indicated in the introduction, informality represents a significant part of the LAC economy, reaching levels above 30% in most of countries of the region, and above 50% in certain countries such as Bolivia, Guatemala, Haiti, Panama and Peru (World Bank, 2024[1]). In this context, this section of the paper will provide an overview of informal markets in LAC countries including a proposed definition for purpose of discussions, key indicators of informal markets and particularities of the region such as economic sectors with high levels of informality.
Competition law enforcement in informal markets in Latin America and the Caribbean
There is not a consensus over the definition of informal economy nor informal markets. The specialised literature refers to “underground”, “shadow economy”, “grey”, “unofficial” in the attempt to provide a concept for informal economy (OECD, 2010[3]). Generally, the informal economy includes all market-based production of legal goods and services that are deliberately concealed from public authorities, excluding illegal underground economic activities that fit the characteristics of classic crimes such as illegal drug dealing (Schneider and Enste, 2013[4]).
As done in previous OECD work related to competition policy in the informal economy, this paper will rely on the definition of informal economy proposed by the International Labour Organization (ILO): “all economic activities by workers and economic units that are – in law or in practice – not covered or insufficiently covered by formal arrangements. Their activities are not included in the law, which means that they are operating outside the formal reach of the law; or they are not covered in practice, which means that – although they are operating within the formal reach of the law, the law is not applied or not enforced; or the law discourages compliance because it is inappropriate, burdensome, or imposes excessive costs” (ILO, 2012[5]).
For purposes of this paper, “informal market” is an inter-related concept of the “informal economy” as defined above. Basically, “informal economy” covers activities which are not fully compliant with laws and regulations, for instance those that fail to comply with business registration requirements, or legislation related to taxation, labour, health, product safety, intellectual property, environment, consumer, or sector specific laws. In this sense, the paper will focus on informal business activities that could potentially be legalised if the costs/benefits of informality were different (therefore excluding informal activities that are illegal by nature, such as drug dealing, since no improvement in the regulatory framework would change their informality status). Examples of informal markets may include: street vendors, informal construction services, informal transportation services, domestic cleaning services, home-care services, amongst others.
The size of informal economy is usually estimated by data related to informality in labour relations, namely workers that are not formally hired or subject to working conditions lower than regular workers including normal levels for safety, cleanness and social security protection. According to the World Bank, approximately half of LAC’s economy is informal, with levels of informality above 30% in most of LAC countries as indicated below.
Source: Adapted from World Bank (2024[1]), Informal Economy Database, www.worldbank.org/en/research/brief/informal-economy-database.
While the overall informality indictors are significant, the variation between LAC countries is also considerable: ranging from 19% (i.e. Chile) to nearly 60-65% (i.e. Bolivia, Panama and Peru). Most of the countries reach levels of around 30-40% of informality rate, which is much higher than developed countries such as Canada, France, Japan, Switzerland, UK and US – all having between 8-15% of informality rate (World Bank, 2024[1]).
Throughout the last decade, the informality rates have slightly decreased in the region although remaining around an overall average of 35% (with no significant differences between the average indicators noted for Latin American countries when compared to Caribbean countries).
Source: Adapted from World Bank (2024[1]), Informal Economy Database, www.worldbank.org/en/research/brief/informal-economy-database.
The indicators – both on the size itself but also the evolution of informality rates – reveal that the informal economy is a significant part of LAC economies, reinforcing the relevance for competition authorities of the region to better understand this phenomenon and properly factor it into their competition analysis when necessary.
Informality also has some distinctive features in the LAC region. The first one relates to the drivers of informality in the region, which is linked to low levels of economic development and the need for many workers to rely on informal economic activities in the context of widespread poverty and limited formal employment opportunities. This element adds to the common reasons explaining the informal economy such as compliance costs and incentives to comply with laws and regulations. These are not temporary causes but rather structural ones that are more complex to address (OECD, 2018[2]).
In addition, informality in LAC is a persistent and widespread phenomenon (and not temporary in nature). This reality is followed by a scarcity of medium-sized firms (the so-called “missing middle”), both of which are consistent with an economy where dominant firms are prevalent, often resulting in highly concentrated formal markets (Alviarez et al., 2025[6]). This may partially explain the fact that informality has strong links with formal markets in LAC countries. It is indeed common that informal players participate in supply chains, for example by providing services or products to formal firms. Examples include informal farmers providing agriculture products to formal retailers (e.g. large supermarket chains) as well as informal services rendered to formal firms or final consumers (e.g. food delivery services, private transportation services or private security services).
Another distinctive feature is that informality is not linear across the economy. In LAC countries, the economic sectors that are prone to informality include transportation services, construction services, retail and agriculture.
For instance, more than half of public transportation trips in Latin America are served by semi-formal and informal services, with “semi-formal” covering services that are legally authorised but operate under informal rules (Tun et al., 2020[7]). In Peru, the transition from a state-owned public transportation market to a non-regulated private transportation market in the 1990s may have contributed to the high levels of informality seen nowadays (Yang and Ulfe, 2020[8]). In other countries of the region, historical reasons may explain the levels, for instance the large reliance on electric streetcars in the early 1900s (elétricos) that was quickly shifted to automobiles in the mid-20th century combined with rapid urbanisation of cities (Tun et al., 2020[7]). In Mexico City, informality in the transportation sector accounts for nearly 15% of the total size of the informal economy of the city (Motta and Gatica, 2021[9]).
In construction services and agriculture, the informality rates in LAC countries reach levels of around 78% and 76% respectively (OECD et al., 2024[10]). Informality rates also differs depending on the gender and/or age of individuals: for instance, the informal employment is 86% amongst women and 78% amongst men in the agriculture sector. In relation to informal domestic services, the rate of women is five times higher than men (International Labour Organization et al., 2025[11]).
These economic sectors illustrate distinctive features that informal markets face in LAC countries, and competition authorities should be mindful of any particularity to properly address its related challenges as explored in the next section.