Informal economy has a vital role in the economy of developing countries in the terms of income generating and contribution in production. In the early literature about informality, informal sector was consider as residual sector and the informal labour considered as surplus labour which will be absorb by formal sector after growth in the economy but informal employment after decades still has increasing pace in some regions or persisted in some others and though there was a widespread assumption that the informal economy is counter cyclical, that is, it expands during economic down turns and shrinks during periods of economic growth. However, study of available data of different developing countries suggests a more complex and dynamic picture, it indicates that no matter what, informal economy persists even in the times of economic growths. Informal economy is so vast and encompasses heterogeneous kind of activities, due to the importance of the informal employment in the economy of developing countries, hence the purpose of this paper is to provide a conceptual definition of the informal economy and its size and contribution to the GDP. Also, to explore the linkage between poverty & informal economy as well as investigating the reasons for the expansion of the informal economy.
