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The Economics of Slums in the Developing World†

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The Economics of Slums in the Developing World† 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 services,services, aandnd accommodatingaccommodating llargearge nnumbersumbers ooff iinformalnformal rresidentsesidents wwithith ggenerallyenerally iinsecurensecure ttenure.enure.1 WWorldwide,orldwide, aatt lleasteast 886060 mmillionillion ppeopleeople aarere nnowow llivingiving iinn sslums,lums, aandnd tthehe nnumberumber ooff sslumlum ddwellerswellers ggrewrew bbyy ssixix mmillionillion eeachach yyearear ffromrom 22000000 ttoo 22010010 ((UN-HabitatUN-Habitat 22012a).012a). IInn ssub-Saharanub-Saharan AAfrica,frica, sslumlum ppopulationsopulations aarere ggrowingrowing aatt 44.5.5 ppercentercent pperer aannum,nnum, a rrateate aatt wwhichhich ppopulationsopulations ddoubleouble eeveryvery 1155 yyears.ears. 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 identi" 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, suf" 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 ooff 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, CCambridge,ambridge, MMassachusetts.assachusetts. 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 withinwithin tthehe ccity,ity, soso tthathat tthehe benebene" 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 ofof migrants,migrants, lifelife inin a slumslum isis veryvery difdif" ccultult andand oftenoften subsistence-subsistence- 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 " ndnd 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 conditionsconditions aaffectingffecting thethe ddwellers’wellers’ humanhuman 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 ddevelopingeveloping wworld.orld. A Contemporary Perspective on Slums SSlumslums aarere nnot,ot, ooff ccourse,ourse, a nnewew pphenomenon.henomenon. TTheyhey werewere a distinctivedistinctive featurefeature ooff EEuropeanuropean aandnd UUSS ccitiesities dduringuring tthehe IIndustrialndustrial RRevolution,evolution, aandnd ttheyhey ppersistedersisted iinn ssomeome ooff thesethese 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, tthehe WWhitechapelhitechapel areaarea ofof EastEast LondonLondon attractedattracted a vastvast numbernumber ofof poorpoor ruralrural mmigrantsigrants duringduring thethe eighteentheighteenth andand nineteenthnineteenth centurycentury duedue toto thethe newnew factoriesfactories aandnd sshopshops ofof tthathat partpart ofof thethe city.city. TheThe Hell’sHell’s KitchenKitchen areaarea ofof NewNew YorkYork CityCity onon thethe HHudsonudson RRiveriver ssideide ooff MManhattananhattan aattractedttracted immigrantsimmigrants inin llargearge partpart becausebecause ofof itsits pproximityroximity toto docksdocks andand railroads,railroads, asas wellwell asas toto thethe growinggrowing citycity nearby.nearby.
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