Who goes informal and when? A multilevel analysis of entrepreneurial entry in emerging and developing economies

Informal entrepreneurship is widespread in emerging and developing economies, yet theoretical explanations for informal entry remain fragmented, as reflected in the marginalization and reinforcement theses. Drawing on the ability–motivation–opportunity framework, this study synthesizes these competing perspectives by developing a multilevel, context-sensitive model. We examine how entrepreneurial self-efficacy and motivations affect informal entry and how these relationships are conditioned by institutional conditions—namely, e-government and government instability. Using data from 13,320 entrepreneurs across 39 countries, we employ multilevel modeling to examine both direct and cross-level effects, supported by robustness checks and supplementary analyses. The findings show that while the marginalization thesis is dominant, its explanatory power diminishes under institutional weakness. By linking individual traits with institutional environments, this study offers a nuanced multilevel account of informal entrepreneurship and advances theory by reconciling divergent logics. Findings also yield practical insights for firms navigating informal markets and for policymakers promoting inclusive formalization.