versus involuntary exclusion from the wage sector. For several years, the dominant view was that the large numbers of self-employed workers in developing countries reflected the rationing of employment opportunities in the wage sector, due to regulations or efficiency wages that pushed wages above their market clearing level. This consensus was challenged by a series of studies of job mobility from Mexico and Brazil, which found high rates of mobility into self-employed jobs as well as several self-employed who report moving by choice (Maloney, 2004, Bosch and Maloney, 2007).

The current consensus is that types of self-employed are present in developing countries, and subsequent research has tried to assess their relative prevalence. De Mel, McKenzie and Woodruff (2008), for example, use discriminant analysis to discover whether the characteristics of own account workers are more similar to the characteristics of employers or wage and salary employees. They find that roughly two-thirds of own account worker have characteristics that make them more similar to wage and salary employees than to the employers of small and medium firms. This is consistent with relatively low rates of mobility from wage work into ownaccount work, as over half of own-account workers reported being self-employed throughout their entire working lives. On the other hand, the remaining more dynamic entrepreneurs were in many cases able to grow, as nearly 10 percent of own account workers in the sample hired a full-time employee less than three years. The authors conclude that the self-employed should be viewed on two levels. The bottom level contains the majority of self-employed who lack the potential to grow, while interventions should be focused on identifying those entrepreneurs in the top level and addressing their constraints to growth.

Grimm, Knorringa and Lay (2011) investigate similar questions among urban informal sector firms in the capital cities of seven West African countries (Benin, Burkina Faso, Cote d’Ivoire, Mali, Niger, Senegal and Togo). They identify 10 percent of their sample as successful entrepreneurs, based on a firm size and productivity criteria. Specifically, they first select those who are in the top quartile of the capital distribution of their respective country, and from this sub-sample classify the most profitable 40 percent as successful. They then identify unsuccessful entrepreneurs with a high potential as those with characteristics similar to the characteristics of successful entrepreneurs. These “constrained gazelles” are potentially successful entrepreneurs who are constrained by lack of access to credit or other constraints. Although the stock of capital in the “constrained gazelle” firms is low, measured returns to capital are high. The estimated share of entrepreneurs who fall into the “constrained gazelle” category ranges from 19% to 58%, depending on the country and the specific set of characteristics used to make the comparison. They also confirm that successful entrepreneurs, and those with a high potential to be successful, are different than the majority of unsuccessful enterprenurs. Namely, successful entrepreneurs are more likely to be older, have more education, are more likely to speak French, own firms that are “older,” show more 5