The first two rows in table 5 report the effects of the distortions on the level of informality and the relative price. Informal employment rises significantly, from an 8% share in the U.S. to 18% under entry barriers, 35% under misallocation, and 58% for the combination of distortions. Relative to the informal employment share of 70% in our Ghanaian data, the model with both distortions can account for about three-quarters of the observed value. The table also shows the change in the relative price of formal to informal goods as the general equilibrium force driving the reallocation of expenditure, firm entry, and employment into informal production. The relative price increases more than threefold relative to its value in the undistorted economy.

In terms of the productivity losses, table 5 shows that these reach up to 12% in the case of entry barriers and idiosyncratic distortions. The last row of the table allows for a decomposition of the aggregate losses. Formal output plummets by up to 60% due to the multiple effects created by the distortions, namely, a misallocation of resources among surviving incumbents, a reduction in formal sector entry, and subdued innovation expenses. However, the informal sector, in so far as it is captured in official statistics, partially compensates for the losses in the formal sector, by increasing the number of varieties and thereby informal aggregate output. The aggregate productivity still falls due to the lower aggregate productivity in the formal sector and due to the reallocation of resources towards the informal sector, which is less productive than the formal one.

# **7 Conclusion**

This paper investigates the size distribution of manufacturing plants in Sub-Saharan Africa, where the distortions are all the more ubiquitous. It uses firsthand establishment censuses from Burkina Faso, Cameroon, Ghana, and Rwanda to identify four stylized facts: (i) there exists a drop in the employment share accounted for by the middle range of the size distribution, providing some support to the missing middle hypothesis; (ii) informal firms are necessary for the missing middle to appear; (iii) the size distribution of formal firms looks somehow more like the size distribution in developed economies; and (iv) the missing middle does not arise from entry but instead reflects firm growth patterns. To the best of our knowledge, our contribution is the first that embraces detailed and comprehensive censuses of establishments in the non-agriculture sectors of Sub-Saharan countries in a comparative fashion.

The controversy about the existence of a missing middle appears to be definitional. A binary existence statement necessarily rests on identifying assumptions that arguably obscure the relevance of the matter. In that sense, we argue that the missing middle is an elusive concept. This paper steps back from the controversy and establishes a number of stylized facts regarding patterns in the size distribution.

The analyses underline the important consequences of informality and question the common perception that the missing middle arises from the size distribution of entrants. Additionally, methodically studying the size distribution to identify empirical regularities is useful and policy-relevant. However, the possibilities are currently rather limited because of the issue of data availability. This calls for conducting comprehensive establishment censuses that include informal businesses.

The policy-relevant question here is whether a missing middle is a cause for concern. In some ways, it is: a firm size distribution exhibiting a missing middle means that there is a scope for shifting 38