1) The informal economy makes up a large share of employment in many developing countries and includes survival activities, micro-entrepreneurs, and workers or firms subordinated to larger formal firms. 2) Empirical evidence on the impact of trade opening on informality is mixed and depends on country and sector, but well-designed labor market policies can help facilitate transition to formality. 3) Informality is associated with lower economic growth, limited export opportunities, impaired adjustment to changes, and vulnerability to economic shocks due to lack of skills and fiscal resources.