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Questions about the role of the "informal sector" color much of the discussion of urban economic development in poor countries. Why is there an informal sector (and how to define it)? Are informal businesses stagnant or dynamic, and can they contribute to development? In the small Bolivian city of Sucre, site of this study, there is no "informal sector"; rather, the entire economy demonstrates informal characteristics. With a handful of exceptions, businesses are all very small and household centered. Most manufacturing is done by hand or with simple machines, and informal labor and trade relationships predominate. This thesis describes Sucre's producers, especially chocolate-makers and carpenters, and the local organizations which work with them to promote business growth. Despite attempts by local NGOs, grassroots organizations, and business people, Sucre' businesses stay, small and informal. The reasons for this include: (A) the size and composition of the local market; (B) the problems of trust and contract enforcement which raise transaction costs (for hiring workers, contracting distributors and forming partnerships); (C) the inability to "catch up" with more efficient, mechanized competitors in neighboring countries; and (D) a tendency for households to diversify their investments as a response to risk and uncertain markets. The main problem impeding business growth in Sucre is not the businesses' informality (which is principally a result of their smallness), but the local social, economic and institutional environment in which they must work. This is an environment in which business owners have learned to survive and even, occasionally, prosper, but one which they have thus far been unable to change.