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The Economics of Slums in the Developing World

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The Economics of Slums in the Developing World The Economics of Slums in the Developing World The MIT Faculty has made this article openly available. Please share how this access benefits you. Your story matters. Citation Marx, Benjamin, Thomas Stoker, and Tavneet Suri. “The Economics of Slums in the Developing World.” Journal of Economic Perspectives 27, no. 4 (November 2013): 187–210. As Published http://dx.doi.org/10.1257/jep.27.4.187 Publisher American Economic Association Version Final published version Citable link http://hdl.handle.net/1721.1/88128 Terms of Use Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use. Journal of Economic Perspectives—Volume 27, Number 4—Fall 2013—Pages 187–210 The Economics of Slums in the Developing World† Benjamin Marx, Thomas Stoker, and Tavneet Suri rrbanban ppopulationsopulations hhaveave sskyrocketedkyrocketed ggloballylobally aandnd ttodayoday rrepresentepresent mmoreore tthanhan hhalfalf ooff tthehe wworld’sorld’s ppopulation.opulation. IInn somesome ppartsarts ooff tthehe ddevelopingeveloping wworld,orld, tthishis U ggrowthrowth hhasas mmore-than-proportionatelyore-than-proportionately iinvolvednvolved rruralural mmigrationigration ttoo iinformalnformal ssettlementsettlements iinn aandnd aaroundround ccities,ities, kknownnown mmoreore ccommonlyommonly aass ““slums”—slums”— ddenselyensely ppopulatedopulated uurbanrban aareasreas ccharacterizedharacterized bbyy ppoor-qualityoor-quality hhousing,ousing, a llackack ooff aadequatedequate llivingiving sspacepace aandnd ppublicublic sservices,ervices, aandnd aaccommodatingccommodating llargearge nnumbersumbers ooff iinformalnformal rresidentsesidents wwithith ggenerallyenerally iinsecurensecure ttenure.enure.1 WWorldwide,orldwide, aatt lleasteast 8860 million60 million ppeopleeople aarere nnowow llivingiving iinn sslums,lums, aandnd tthehe nnumberumber ooff sslumlum ddwellerswellers ggrewrew bbyy ssix millionix million eeachach yyearear ffromrom 22000000 ttoo 22010010 ((UN-HabitatUN-Habitat 22012a).012a). IInn ssub-Saharanub-Saharan AAfrica,frica, sslumlum ppopulationsopulations aarere ggrowingrowing aatt 44.5 percent.5 percent pperer aannum,nnum, a rrateate aatt wwhichhich ppopulationsopulations ddoubleouble eeveryvery 115 years.5 years. TThehe ggloballobal eexpansionxpansion ofof urbanurban slumsslums pposesoses qquestionsuestions fforor economiceconomic research,research, aass wwellell aass pproblemsroblems fforor ppolicymakers.olicymakers. SSomeome eeconomistsconomists ((FrankenhoffFrankenhoff 11967;967; TTurnerurner 11969;969; WWorldorld BBankank 22009;009; GGlaeserlaeser 2011)2011) havehave suggestedsuggested a “modernization”“modernization” theorytheory ofof 1 Perhaps not surprisingly, the identifi cation of slum inhabitants suffers from the lack of a consistent terminology—for example, “slums” and “squatter settlements” are used almost interchangeably, although tenure and ownership institutions vary greatly across informal settlements. UN-Habitat (2006) applies the notion of “slum household” to any household lacking access to improved water, improved sanitation, suffi cient living area, durable housing, and secure tenure. Slum areas are generally thought of as geographic areas accommodating informal residents that combine several of these characteristics. ■ BBenjaminenjamin MarxMarx isis a PhDPhD studentstudent atat thethe DepartmentDepartment ofof Economics,Economics, MassachusettsMassachusetts InstituteInstitute ooff TTechnology,echnology, Cambridge,Cambridge, Massachusetts.Massachusetts. ThomasThomas StokerStoker isis GordonGordon Y.Y. BillardBillard ProfessorProfessor inin MManagementanagement andand EconomicsEconomics andand ProfessorProfessor ofof AAppliedpplied EEconomics,conomics, aandnd TTavneetavneet SSuriuri isis MauriceMaurice FF.. SStrongtrong CCareerareer DDevelopmentevelopment PProfessorrofessor aandnd AAssociatessociate ProfessorProfessor ofof AppliedApplied EEconomics,conomics, bbothoth atat tthehe MMITIT SSloanloan SSchoolchool ooff MManagement,anagement, Cambridge,Cambridge, Massachusetts.Massachusetts. TTheirheir eemailmail aaddressesddresses aarere [email protected],[email protected], [email protected],[email protected], andand [email protected]@mit.edu. † To access the disclosure statements, visit http://dx.doi.org/10.1257/jep.27.4.187 doi=10.1257/jep.27.4.187 188 Journal of Economic Perspectives sslums:lums: aaccordingccording ttoo tthishis tthinking,hinking, sslumslums aarere a ttransitoryransitory pphenomenonhenomenon ccharacteristicharacteristic ooff ffast-growingast-growing eeconomies,conomies, aandnd ttheyhey pprogressivelyrogressively givegive wwayay toto fformalormal hhousingousing asas eeconomicconomic ggrowthrowth ttricklesrickles ddownown aandnd ssocietiesocieties aapproachpproach tthehe llaterater sstagestages ooff eeconomicconomic ddevelopment.evelopment. EEvenven iiff sslumlum aareasreas aappearppear sstabletable iinn tthehe sshort-hort- oorr mmedium-edium- tterm,erm, tthishis aargumentrgument hholds,olds, sslumlum llivingiving oonlynly representsrepresents a transitorytransitory phasephase inin thethe lifelife cyclecycle ofof rruralural mmigrants:igrants: tthehe sslumlum ddwellerswellers oror ttheirheir cchildrenhildren eventuallyeventually mmoveove iintonto formalformal hhousingousing wwithinithin tthehe ccity,ity, soso tthathat tthehe benefibenefi tsts ofof migrationmigration intointo thethe slumslum getget passedpassed aalonglong ffromrom ggenerationeneration ttoo ggeneration.eneration. BButut eevenven iiff uurbanrban ppovertyoverty iiss ppreferablereferable ttoo rruralural ppoverty,overty, aass aapparentlypparently sshownhown bbyy tthehe rrevealedevealed ppreferencereference ooff mmigrants,igrants, llifeife iinn a sslumlum iiss vveryery ddiffiiffi ccultult aandnd ooftenften ssubsistence-ubsistence- llevel.evel. MMoreover,oreover, sslumslums ddoo nnotot aalwayslways sseemeem ttoo bbee a ttemporaryemporary pphenomenonhenomenon ooff mmigrationigration ttoo ccities:ities: iinn mmanyany ccountriesountries sslumlum aareasreas hhaveave bbeeneen ggrowingrowing fforor ddecades,ecades, aandnd mmillionsillions ooff hhouseholdsouseholds fi nndd tthemselveshemselves ttrappedrapped iinn sslumslums fforor ggenerations.enerations. TThishis mmightight ssuggestuggest tthathat ttoday’soday’s sslumslums pposeose a pproblemroblem ooff a ddifferentifferent nnature:ature: bbecauseecause ooff mmultipleultiple mmarketarket aandnd ppolicyolicy ffailures,ailures, aacutecute ggovernanceovernance aandnd ccoordinationoordination pproblemsroblems tthathat hhinderinder iinvestment,nvestment, aandnd uunsanitarynsanitary llivingiving cconditionsonditions aaffectingffecting tthehe ddwellers’wellers’ hhumanuman ccapital,apital, llifeife iinn tthehe sslumlum mmightight cconstituteonstitute a fformorm ooff ppovertyoverty ttraprap fforor a mmajorityajority ooff ttheirheir rresidents.esidents. IInn tthishis eessay,ssay, wwee pproviderovide hhistoricalistorical aandnd ccontemporaryontemporary ffactsacts ttoo aarguergue tthathat tthehe ttypeype ooff ppovertyoverty oobservedbserved iinn ccontemporaryontemporary sslumslums ooff tthehe ddevelopingeveloping wworldorld iiss ccharacteristicharacteristic ooff tthathat ddescribedescribed iinn tthehe lliteratureiterature oonn ppovertyoverty ttraps.raps. WWee ddocumentocument hhowow hhumanuman ccapitalapital tthresholdhreshold eeffects,ffects, iinvestmentnvestment iinertia,nertia, aandnd a ““policypolicy ttrap”rap” mmayay ppreventrevent sslumlum ddwellerswellers ffromrom sseizingeizing eeconomicconomic oopportunitiespportunities oofferedffered bbyy ggeographiceographic pproximityroximity ttoo tthehe ccity.ity. WWee tthenhen ddiscussiscuss wwhetherhether tthehe bbasicasic aassumptionsssumptions ooff tthehe ““modernization”modernization” vviewiew hhold:old: tthathat iis,s, wwhetherhether ttherehere iiss a rrelationshipelationship bbetweenetween eeconomicconomic ggrowth,rowth, uurbanrban ggrowth,rowth, aandnd sslumlum ggrowthrowth iinn tthehe ddevelopingeveloping wworld,orld, aandnd wwhetherhether sstandardstandards ooff llivingiving ooff sslumlum ddwellerswellers aarere iimprovingmproving ooverver ttime,ime, bbothoth wwithinithin sslumslums aandnd aacrosscross ggenerations.enerations. FFinally,inally, wwee ddiscussiscuss wwhyhy sstandardtandard ppolicyolicy aapproachespproaches hhaveave ooftenften ffailedailed ttoo mmitigateitigate tthehe eexpansionxpansion ooff sslumslums iinn tthehe ddevelopingeveloping wworld.orld. OOurur aaimim iiss ttoo sstimulatetimulate sseriouserious aacademiccademic iinterestnterest aandnd ttoo iinformnform ppublicublic ddebateebate oonn tthehe eessentialssential iissuesssues pposedosed bbyy sslumslums iinn tthehe ddeveloping world.eveloping world. A Contemporary Perspective on Slums SSlumslums aarere not,not, ofof course,course, a newnew phenomenon.phenomenon. TheyThey werewere a distinctivedistinctive featurefeature ooff EEuropeanuropean andand USUS citiescities duringduring thethe IndustrialIndustrial Revolution,Revolution, andand theythey persistedpersisted inin ssomeome ooff tthesehese citiescities wellwell intointo thethe twentiethtwentieth century.century. TheThe well-knownwell-known slumsslums ofof thethe ppastast wwereere oftenoften onon thethe outskirtsoutskirts ofof dynamicdynamic economiceconomic growth,growth, whichwhich bothboth attractedattracted mmigrantsigrants andand offeredoffered themthem somesome accessaccess toto economiceconomic opportunities.opportunities. ForFor example,example,
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