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This article contributes to filling the knowledge gap on the micro-dynamics of the informal sector by addressing three issues: (1) the degree of transitions brought about by production units between formal and informal sectors; (2) factors associated with the choice of formalization, and (3) those associated with the largely misconstrued process of informalization in periods of crisis. It combines unique panel data that is representative of the Vietnamese urban informal sector, with a qualitative investigation. It is shown that the informal sector plays the role of buffer and incubator simultaneously