Mobile Money, Rural Household Welfare and Remittances: Panel Evidence from Uganda

Ggombe Kasim Munyegera ƒ

and

Tomoya Matsumoto ℘

February 2014

Abstract

Mobile money service in Uganda has expanded rapidly, penetrating as much as over 30 percent of the adult population in just four years since its inception. We investigate the impact of this financial innovation on household welfare, using household survey panel data from rural Uganda. Results from our preferred specification reveal that adopting mobile money services increases household per capita consumption by 69 percent. The mechanism of this impact is the facilitation of remittances; user households are more likely to receive remittances, receive remittances more frequently and the total value received is significantly higher than that of non-user households. Our results are robust to a number of robustness checks.

Key words: Mobile money, financial inclusion, household welfare.

JEL Classification: O16, O17, O33, I131

ƒ Corresponding author. National Graduate Institute for Policy Studies. 7-22-1 Roppongi, Minato-ku 106- 8677 Tokyo Japan. Contact: [email protected] ℘ National Graduate Institute for Policy Studies. 7-22-1 Roppongi, Minato-ku 106-8677 Tokyo Japan.

I. Introduction

Financial inclusion 1 plays an integral role in reducing rural poverty as it facilitates saving and borrowing as well as empowering the poor to smooth consumption and insure themselves against a number of vulnerabilities in their lives (World Bank, 2012). However, a large fraction of the population in developing countries lacks access to the basic financial services (Asli and Klapper, 2012). Lack of access to basic financial services restricts the ability of the rural poor to make savings and investments and engage in both formal and informal insurance mechanisms aimed at smoothing consumption and curbing poverty (Dupas and Robinson, 2008).

The prevailing low rate of financial inclusion has attracted the attention of scholars to investigate its driving factors (Asli and Klapper, 2012; Kumar, 2006; Collins et al., 2009; Susan and Zarazua, 2011). Among the commonly cited limiting factors is the relative concentration of formal financial institutions in urban centers with limited penetration among rural communities. This urban concentration poses high monetary and opportunity costs involved in accessing and using financial services, especially by the rural poor in remote locations. In their analysis of financial access and exclusion in Kenya and Uganda, Susan and Zarazua(2011) re-defined financial inclusion to include semi-formal and informal financial services like Rotating Saving and Credit Associations (ROSCA) and Savings and Credit Cooperative Organizations (SACCO). They found that exclusion is associated with agro-ecological and socio-cultural characteristics of the region, rather than the mere urban-rural status.

Mobile banking, a recent innovation in the financial sector, is expected to bridge the financial service access gap, thus allowing for socio-economic improvements especially among the financially excluded rural communities in many

1Financial inclusion, as synonymous to financial access, will be used interchangeably with financial exclusion. Access and inclusion will be used to refer to a situation where an individual has access to the services of a formal financial institution like a commercial bank, Micro-finance institutions and insurance companies. Financial exclusion is used in this paper to refer to the involuntary lack of access to formal financial services.

developing countries. Mobile banking allows users to make, deposits and transfers of funds as well as purchase of some limited range of goods and services using their mobile phone. This provides a relatively cheap and convenient means through which family members and friends exchange financial assistance in the form of remittances especially in remote areas with limited or no access to formal financial institutions like banks. Empirical studies have illustrated the developmental role of mobile banking. One such popular channel of this impact is the change in the pattern of remittances (Mbiti and Weil, 2011). The benefit of mobile money extends beyond the individual and household levels to businesses and organizations. Aker et al. (2011) demonstrated that the welfare program that distributed financial assistance for people to cope with the adverse effects of a severe drought in 2008 was implemented cheaply through mobile money, relative to conventional transfer mechanisms. This, they argue, owes to the relative inexpensiveness and convenience of mobile banking.

Jack and Suri (2011) provided evidence that access to mobile money services facilitates risk sharing by significantly reducing the transaction costs of remittances among family member and friends in Kenya. They found that households which subscribe to M-Pesa - Kenya’s most popular mobile money service - were able to cushion themselves against consumption volatilities when struck by income shocks, by receiving remittances from a wide pool of members in their social networks.

Despite the relative importance of mobile banking in the lives of the rural poor, less is known about its impact on their welfare. Specifically, there is scanty empirical evidence on how financial access affects the lives of the rural poor in developing countries. To the best of our knowledge, there is no empirical study that analyses the socio-economic impact of mobile banking in the Ugandan context, most of the recent works are based on the Kenyan experience (Mbiti and Weil, 2011; Jack and Suri, 2011). Besides, the analysis samples of these studies are inclusive of the urban mobile money users with less focus on the rural communities which tend to be more financially excluded. Moreover, recent studies on mobile money in Uganda are centered on analyzing adoption and use patterns (Susan and Zarazua, 2011; Ndiwalana, 2010) while other studies rely anecdotal evidence.

Following the rapid adoption of mobile money services in Uganda, there is need to assess whether there is any direct welfare improvement that accrues to its users.

This paper seeks to fill the literature gap by investigating the impact of mobile money access on the welfare of rural households in Uganda. This study is unique in a way that it targets particularly households in rural locations which often tend to have less access to formal banking services coupled with relatively high poverty rates. We use a two-year panel of 907 households from 94 Local Council 1s in Uganda 2, collected in 2009 and 2012. In less than four years since its inception in March 2009, the number of active mobile money subscribers has expanded to over nine million users.3 Between December 2011 and December 2012, the number of mobile money users increased from 2.9 million users to 9 million users. This is expected to facilitate inter-household transfer of funds especially and thereby increase household welfare. The number of LC1s with at least one mobile money booth increased from 26 to 90 out of 94 LC1s in our sample between the two survey rounds. At the same time, household adoption of mobile money services expanded from less than one percent to 38 percent.

From our preferred specification, results indicate that using mobile money is associated with a 69 percent increase in household per capita consumption. This is made possible through the facilitation of remittances among family members and friends. In particular, we find that households with at least one mobile money subscriber are 20 percentage points more likely to receive remittances from their members in towns and that the total annual value of remittances received is 33 percent higher compared with their non- user counterparts.

The rest of the paper is organized as follows. In section II, we provide background information about mobile money in Uganda before proceeding to the conceptual framework of the expected welfare impact of mobile money and the mechanisms underlying this impact in Section III. Section IV discusses the data and summary statistics, followed by

2 An LC1 is the second smallest unit of administration in Uganda.

3Bank of Uganda estimate as of December 2012.

4 empirical strategy in section V. Empirical results are discussed in section VI while section VII concludes.

II. Background on mobile money in Uganda.

In March 2009, Mobile Telephone Network (MTN) -Uganda established MTN Mobile Money, the first of its kind in the country, following the massive success of Safaricom’s M-PESA in Kenya. Airtel Uganda, formerly known as Zain, joined the service when it rolled out its Airtel Money in June the same year. This new financial innovation proved to be an efficient way for telecom companies to increase their market shares by widening the range of services available to their clients. This attracted Uganda Telecom’s M-Sente in March 2010, followed by Warid Pesa from Warid Telecom in December 2011 and Orange Money from Orange Telecom in the first half of 2012 (Uganda Communications Commission-UCC 2012).

Since mobile money was established in Uganda, the number of subscribers has been steadily increasing. By the end of 2012, Uganda had over 9 million mobile money users all over the country. This represents a three-fold expansion from 3 million users in 2011. The number of mobile money transactions increased from 180 million to 242 million between 2011 and 2012 while the total value exchanged through the platform increased from $1.5 billion to $4.5 billion in the same period (BoU, 2012).MTN Mobile Money alone has over 15,000 agents as compared with 455commercial bank branches with 660 Automated Teller Machines (ATMs). This rapid expansion partly owes to the high rates of both the roll-out of mobile phone network and adoption of mobile phones. In our sample, the proportion of households owning a mobile phone increased from 52 percent to 73 percent between the two survey rounds while all LC1s were covered by mobile phone network in both surveys.

Mobile money allows users to deposit money as e-float on a SIM card-based account, called an m-wallet , which can be converted into cash at any mobile money agent location all over the country. In the initial stages of its establishment, the range of

5 services offered was largely limited to person-to-person transfer but with the growing interest from stake-holders, coupled with competition among the mobile network operators (MNOs), this platform has expanded the range of services to include more complex uses like payment of utility bills, school fees, airtime purchase and direct purchase of goods and services.

Recent developments in the mobile banking arena have made it possible for users to access their bank accounts using their mobile phones without having to physically visit their bank branches, thanks to the partnership between MNOs and banks. 4 This is expected to raise financial inclusion especially at the lower end of the social spectrum while reducing the cost of access and use of basic financial services. With the rapid urbanization in Uganda over the past years, the number of people migrating to towns has been steadily increasing. Those who migrate to cities often render financial support to their rural households in the form of remittances. The efficiency of this remittance system heavily relies on the quality of physical infrastructure as most of these transactions involve physical transfer of cash by the receiver, sender, and agents like bus and taxi drivers among others informal channels. Besides, the massive geographical dispersion between senders and receivers implies high transaction costs in terms of transport fares and travel time involved in sending and receiving money among household members especially across geographically distant and remote locations.

III. Conceptual Framework.

This section provides a conceptualized idea of inter-household exchange of resources as an informal insurance scheme with an ultimate goal of maximizing overall household welfare. We assume household members are scattered in rural and urban locations yet they maximize joint welfare. This isolation of members is partially due to migration of some members into cities in search for better opportunities like jobs with higher pay and those who work in towns regularly remit money to their

4Major partnerships exist between MTN Mobile Money and Stanbic Bank, M-Sente and Standard Chartered Bank and WaridPesa and DFCU Bank.

6 members in the country side. The effectiveness of this sharing mechanism relies on the cost of transferring money between the two ends, which in turn depends on the variety of transfer mechanisms and the physical distance between the sender and the receiver.

In our theoretical model, we assume two periods – one prior to and none after the introduction of mobile banking. Given that the receiving members are located in remote areas, access to formal financial institutions is highly limited. This implies that in period one, cash is transferred physically either by the sender or receiver or through agents like bus and taxi drivers because formal financial institutions are only available at the sending end but not at the receiving end of the social sharing network. This poses a high cost of exchanging financial assistance among members of the social network (household) both in terms of transport fare and opportunity cost of travel time between the two locations. Limiting the effectiveness of this sharing scheme can be reflected in reduced per capita household consumption, which reduces the overall welfare of the household members. Under these conditions, remittance channels that increase convenience and reduce the cost of remittances may facilitate funds flow within the network, raising per capita consumption and overall welfare.

In period two, mobile banking is introduced which makes it possible for members at the receiving end to access funds remitted by their working members. This financial innovation is cheap and convenient both for the provider and the user. On the side of the service provider, the benefit is the ability to reach out rural households without massive investment in financial infrastructure like banks while users benefit from the reduced time and monetary costs of accessing financial services. In this period, members who work in towns have a convenient platform to send money to their rural households without physically travelling back home or sending physical cash, which in turn increases the safety of remitted funds. This period is associated with a higher probability that a rural household receives remittances from its members working in town and a corresponding increase in both the number of remittances and total value received.

If mobile money reduces the economic and opportunity costs of transferring money across geographically distant areas, then households which have access to this service should have higher welfare, made possible through the availability of a cheap and convenient remittance channel. The number of people using mobile money in Uganda increased from 3 million to 9 million between 2011 and 2012 while in our sample, the proportion of users increased from less than one percent to 38 percent between 2009 and 2012. This rapid expansion is expected to increase financial inclusion and raise welfare among rural communities. We therefore believe that household per capita consumption increases with mobile money adoption. We also hypothesize that access to mobile money services increases the probability that a household receives any remittance, the frequency of remittances as well as the total value of remittances received from their members who mostly work in urban centers.

IV. Data and Summary Statistics

We mainly use data from household and community surveys collected in Uganda in 2009 and 2012 as a part of the Research on Poverty, Environment and Agricultural Technology (RePEAT) project. This is part of the four survey rounds administered jointly by Makerere University, the Foundation for Studies on International Development (FASID) and the National Graduate Institute for Policy Studies (GRIPS) in 2003, 2005, 2009 and 2012. In the baseline survey of 2003, 94 LC1s were sampled and 10 households were randomly selected from each of the LC1s, making a total of 940 households. The follow-up surveys of 2005, 2009 and 2012 successfully captured 856, 816 and 866 of the original households, respectively. The high attrition rate in the third round was partially offset by the inclusion of neighboring households to replace those that could not be traced

The major household-level information that was captured in the surveys included demography, income and consumption expenditure, wealth indicators, use of telecommunication and financial services like mobile phones and mobile banking and farming practices. Community characteristics like distance and travel time to the

market and district towns, availability of mobile phone network and quality of roads were captured in the community-level surveys.

Analysis in this paper is based on a balanced panel of 838 households generated from the third and fourth rounds in 2009 and 2012. Table 1 shows the summary statistics of this sample. The proportion of households which report having at least one member using mobile money services increased from less than 1 percent in 2009 to 38 percent in 2012. The rapid adoption of mobile money services owes to the availability of mobile phone network and the expansion in mobile phone adoption. While all LC1s were covered by mobile phone network in both surveys, mobile phone adoption at the household level increased from 52 percent to 73 percent.

[Insert table 1 here]

Although bank account information was not captured in 2009, we do not expect a substantial change between the two rounds. It is not surprising that only 22 percent of households reported having at least one bank account in 2012 because our sample households are predominantly from rural-based. This throws light on the relative exclusion of majority of rural households and individuals from the formal financial sector services.

The proportion of households that reported having received remittance in the past 12 months prior to the survey month increased by 20 percent from 50 percent in 2009 to 70 percent in 2012 and on average, the annual frequency of remittances increased from 2 to 4 times. There was a two-fold increase in the total value of remittances received from UGX 274,682 (USD 135)5 in 2009 to UGX 582,546 (USD 227) in 2012. Among households that received remittances, the total value received represents approximately 10% of total annual household consumption expenditure.

5 According to the annual Bank of Uganda Report 2012, the Uganda shilling was equivalent to USD 2028 and 2557 in financial years 2008/2009 and 2011/2012, respectively.

During the same period, monthly per capita consumption rose from UGX 58,234(USD 29) to UGX 96,184 (USD 47). Asset value was, on average UGX 826,284 (USD 323) and the land holding per household was five acres (two hectares). There was significant change in the household size 6 at 8 persons on average, while the proportion of female-headed households increased by 3 percent, from 13 percent in 2009 to 16 percent in 2012. An average household head was 51 years old with six years of schooling while the level of education attainment by the most educated member of the household was averagely 9 years.

We stratify our sample by mobile money adoption status in Table 2 to give a rough understanding of the difference in the characteristics between the users and non-users. Seventy eight percent of mobile money users reported that they had ever received at least one remittance in the past twelve months prior to the survey month, with an annual remittance frequency of 5 times and total value of UGX 859,394 (USD 336). This represents a significant difference from 56 percent of non-user households that received remittances slightly less than 3 times a year amounting to a total value of UGX 324,182 (USD 126) in the same period. Monthly per capita consumption was 43 percent higher relative to non-users. In general, mobile money user households are relatively wealthier, are headed by more educated members and have a larger number of members. Concerning gender and age of the household head, there is no significant difference between users and non-users.

[Insert table 2 here]

V. Empirical Strategy

In this section, we estimate three major equations; (i) the determinants of mobile money adoption at the household level, (ii) the effect of mobile money adoption on household per capita consumption and (iii) the impact of mobile money use on

6 A household member is one who had lived in the household for at least one month in the 12 months prior to the respective survey month.

measures of household remittances; probability of receiving remittances, frequency and total value of remittances received.

A. Baseline Specification

1) Determinants of mobile money adoption.

Since the outcome variable we want to estimate in this section is a binary variable, we estimate the probability of adopting mobile money services as a latent variable model. The decision to adopt mobile money services cannot be observed but depends on observed characteristics of the household and village in the form

∗ = λ + βX + + (1) ijt ɳjt ɛijt

* where Mmoney ijt is a latent variable that captures the decision to adopt mobile money

services by household i in village j at time period t; ɳjt captures location and time effects

and Xijt is a vector of household characteristics which include household size, log of asset and land endowments, age, gender and education level of the household head and a dummy for household mobile phone possession. Our variable of interest, Mmoney , is then observed only if the latent variable ∗ is positive. Specifically,

1∗ > 0 Mmoney= (2) 0ℎ

We also estimate mobile money adoption using a more robust linear probability fixed effects estimation to rule out the effect of unobservable time-invariant household and village characteristics that might simultaneously influence welfare and the decision of the household to adopt mobile money services. As we shall show in the results section, the change of estimation method does not qualitatively change our results.

2) Mobile money and household per capita consumption

We first examine the effect of mobile money adoption on household welfare using a simple difference-in-differences strategy that compares the monthly per capita consumption of mobile money users against that of non-users.

cijt = γ + αi + µMmoney ijt + ψXijt + ɳjt + εijt (3) where cijt is the monthly per capita consumption of household i in village j in period t, αi is a household fixed effect, Mmoney ijt is a dummy variable equal to one if there is at least one mobile money subscriber in the household. The parameter µ thus represents the coefficient of our interest which is expected to be positive. We use household per capita consumption as a proxy for household welfare. As an alternative, we could use total household income as it is also directly linked to the ability of a household to improve the wellbeing of its members. However, this measure is more vulnerable to short-term economic effects compared to the consumption measure (Gilligan and Hoddinott, 2009).

3. Mechanisms: Mobile Money and Remittances

To assess whether remittance patterns differ across users and non-users of mobile money, we estimate the following equation, which is a slight modification of equation (3).

rijt = γ + αi +π Mmoney ijt + ψXijt + σjt + εijt (4) where rijt is a measure of remittances received by household i in village j in period t. This measure takes three variants; the probability that a household receives a remittance, the number of remittances received in the past 12 months of the respective survey round and the total value received within the same period. In order to more concretely account for family dynamics in the remittances structure, we include a dummy variable equal to one if the household reported having at least one member who moved out to search for a job outside the home village, hereafter used interchangeably as job-seeking behavior and having a migrant worker. In equation (4) we include a full set of controls as in (3) above.

B. Falsification Test

In order to confirm that the observed difference in consumption and remittances between users and non-users of mobile money is genuinely due to this financial platform, we replicate the estimation strategy as described above, using RePEAT data for the period prior to mobile money. We thus estimate equations (3) and (4) using 2003 and 2005 data. This constitutes the first and second rounds of the RePEAT series, as described in the Data section of this paper. Using this data, we examine whether there existed differences in consumption and remittance patterns between households that later adopted mobile money against non-adopters. Since mobile money was not available in this period, we use a placebo binary treatment variable equal to one for households that adopted mobile money in/after 2009. We also examine having a migrant worker in a household had an influence over remittance patterns. This strategy enables us to assess whether the differences in outcome variables (consumption and remittance measures) between users and non-users are indeed a result of mobile money adoption status. We expect no significant difference between households that later adopted mobile money services and those that did not. If this is true, then the emergence of a significant relationship between mobile money and the outcome variables could be attributed to mobile money.

C. Instrumental Variable and Tobit Regressions

So far, we have assumed that mobile money adoption by the household is conditionally mean-independent, given the other control variables included in the regressions. This implies that the estimated coefficients are only valid if mobile money adoption is not correlated with the error term conditional on the other controls. Although we are able to rule out the effect of unobserved time-invariant household heterogeneity using fixed effects estimation, the decision to adopt mobile money services may be highly correlated with time-variant un-observables that also affect household consumption expenditure. Also, being a remittance recipient in the past might induce the household to adopt mobile money as a cheaper and convenient platform to receive remittances from their members in towns. This endogeneity resulting from simultaneous effects might confound our OLS and fixed effects estimates. To address the issue, we resort to instrumental variable estimation of

13 consumption using log of the distance to the nearest mobile money agent as an instrument for mobile money adoption at the household level. We employ a Tobit model in combination with a control function method to deal with two critical challenges associated with our remittance variables. The first challenge concerns the corner solution nature of the remittance measures, owing to the fact that the number and total value of remittances received are only available for households which received positive remittances. This implies that these variables have a skewed distribution given the many zeroes for non- recipients. The control function approach deals with the second challenge - potential endogeneity resulting from the correlation between remittance variables and time-variant unobserved household characteristics (Vella, 1993). In both variants of our Tobit models, we include time averages of household characteristics to rule out the effect of time- invariant household characteristics that could confound our results (Mason, 2013). Like in the standard IV method described above, we include the log of distance to the nearest mobile money agent in estimating the number and total value of remittances received.

D. Reduced form analysis

The effectiveness of mobile money services heavily relies on the availability and ease of access to mobile money agents as these facilitate cash-in and cash-out transactions. In this section, we examine whether access to a mobile money agent influences household welfare, supposedly through mobile money-based remittances. In the spirit of Jack and Suri (2011), we use the log of distance to the nearest mobile money booth as a measure of access to mobile money services and use the specification below to assess this relation. 7

cijt = γ + αi + π logdist jt + ψXijt + σjt + εijt (5)

where logdist jt is the log of distance in kilometers from village j to the nearest mobile

money booth. Xijt is a vector of household controls as discussed above. We expect π to have a negative sign because the further the mobile money agent, the harder it may be for a household to access mobile banking services and this might translate into

7 Distance to the nearest mobile money location is captured at the community level.

14 reduced ability of a household to receive financial assistance in form of remittances from its members. This would, in turn, reduce the power of a household to smooth consumption as described in earlier sections.

VI. Results

A. Basic Results

1) Determinants of household mobile money adoption.

Table 3 presents the determinants of household mobile money adoption. The probit results in Column 1 reveal that households with mobile phones are nine percentage points more likely to use mobile money services. This is not surprising because mobile money services are offered through a cell phone handset. Education of the household head has a positive and significant impact on the decision to adopt mobile money services; an additional year of education of the household head leads to one percentage point increase in the probability of adopting mobile banking. This could partly capture the literacy effect of educated household heads who could be more able to operate mobile handsets. Alternatively, it could be true that educated household heads are more able to send their children to school who, upon graduation, find jobs in towns and extend financial assistance in form of remittances through mobile money platforms. This claim is partly supported by the significantly positive impact of the job-seeking dummy on mobile money use by the household.

As expected, the coefficient on the 2012 year dummy is positive and significant, consistent with the fact that mobile money adoption increased tremendously between 2009 and 2012 both in our sample and at the national level. These results remain qualitatively unchanged with the fixed effects estimation in Column 2. The significantly negative coefficient on the distance to the nearest mobile money agent implies that households choose to subscribe to mobile money services if the distance from the nearest booth is relatively shorter. This further supports the notion that the relative urban concentration of banks is partially responsible for the slow adoption of

15 formal financial services. It should be noted that mobile money booths and agents are instrumental in facilitating mobile money transactions in a way that they act as cash- in and cash-out agents.

[Insert Table 3 here]

2) Mobile money and household per capita consumption

Table 4A reports the results from the estimation of (3) as OLS and fixed effects models with a full set of household and community characteristics. In column 1 we include location-by-time controls among the covariates in our OLS model. The results suggest a 13 percent increase in household per capita consumption given the adoption of mobile money services. To address the possibility of bias in our OLS results that could potentially result from unobserved and time-invariant household heterogeneity, we estimate a fixed effects model with and without location-by-time effects in columns 2 and 3, respectively. Across all specifications, the estimates remain qualitatively similar, suggesting a significantly higher level of per capita consumption for mobile money users. The location-by-time effects in Column 3 capture district-level trends that might be correlated with both mobile money adoption and per capita consumption.

[Insert Table 4A here]

We further disaggregate our consumption expenditure measure into three categories – expenditure on food items, non-food household basics and social contributions. 8 Table 4B gives a report of these three measures using both OLS and fixed effects estimations. Column 1 shows that mobile money adoption has a positive impact on per capita food expenditure, although the relationship disappears after controlling for unobserved time-invariant household characteristics in Column 2. The average

8Expenditure on household basics includes expenditure on school, medical, transport, clothing, cooking and lighting materials. Social contributions cover expenses on ROSCAs, mutual support organizations – both funeral and non-funeral, churches and mosques, other local organizations and credit repayments.

16 impact for basic expenditure ranges between 15% and 20% for OLS and fixed effects models, respectively (Columns 3 and 4). Columns 5 and 6 reveal that a household that uses mobile money services experiences between 47 and 56 percent higher value of social contributions. These results should, however, be interpreted carefully, as they are likely to be capturing reverse causality effects.9 Nonetheless, they suggest that social contributions and basic expenditures respond more strongly to mobile money adoption as compared to food expenditure. This result is not rather surprising, owing to the rural nature of households in our sample which implies that a large fraction of consumed food comes from own farms. Chetty and Looney (2006) argue that when consumption is close to subsistence level, any shocks to income might not necessarily translate into reduced household consumption because its level is already too low such that it cannot be reduced any further.

3) Mechanisms

Based upon our theoretical prediction, the impact of mobile money on household welfare is achieved through the facilitation of remittances. We explore into this claim by examining whether households that have access to mobile money services have differential access to remittances. These results are reported in table 5A. Being a mobile money user is associated with a significantly higher probability of receiving remittances and the remittances received are larger in number and total value compared with non-users. In estimating the probability of a household receiving remittance, we estimate equation (4) as a Probit model, since the dependent variable is binary. The results in Column1 show that mobile money adoption increases the probability of receiving remittances by seven percentage points. These results remain qualitatively unchanged when using OLS regression in Column 2. In columns 3 through 6, we present the results from the other two measures of remittances – number of remittances and total value received in the past 12 months. From Columns

9Household that make numerous social contributions may be convinced by members of their social networks to join mobile money services for easier transmission of contributions.

3 and 4, mobile money users receive approximately one more remittance at a given time, compared to non-users. The OLS estimates of total value of remittances in Column 5 reveal that adopting mobile money services increases the total value of remittance received by 36%. This translates into approximately 116,706 Uganda Shillings (USD 61), as evaluated at the mean value of non-users. The fixed effects estimation of remittance value in Column 6 yields similar results even after controlling for unobserved time-invariant heterogeneity between users and non-users. In all specifications, we include controls for household characteristics (mobile phone possession, household size, asset value, land size, as well as age, education and gender of household head). The inclusion of location-by-time effects in our regressions captures local macro trends that may have differential influence on household access to remittances.

[Insert Table 5A here]

B. The influence of migration (job-seeking behavior)

We now account for the source of remittances and examine the possibility of differential remittance structure between households that send their members to find jobs in towns and those that do not. These results are reported in Table 5B. Column 1 reveals that, conditional on mobile money status and other covariates, households that send their members to find town jobs are 11 percentage points more likely to receive remittances. Columns 2 and 3 report results for the number and total value of remittances received, respectively. Having a member working outside the village increases the number and total value of remittances by 1.4 times and 42%, respectively. We believe that the introduction of mobile money reduced the monetary and opportunity costs that hitherto hindered these workers from transferring money to villages. Our presumption is that, even when members were working in towns prior to the introduction of mobile money, the idiosyncratic lack of a cheap and convenient money transfer mechanism rendered it hard for the members to remit financial assistance back to their rural households. To check this claim, we perform similar

18 analysis on a sub-sample covering the period before mobile money inception in 2009 – survey rounds of 2003 and 2005. The results in appendix Table A1 suggest no significant relationship between working outside the village and all measures of remittances and consumption. The fact that this relationship emerged after mobile money establishment provides partial evidence in support of impact of mobile money on remittances.

[Insert Table 5B here]

C. Results from Reduced Form Analysis

Table 6 reports the results from our reduced form analysis using log of distance to the nearest mobile money booth as a measure of access to mobile money services at the community level. The dependent variable in column 1 is the log of monthly household per capita consumption. As earlier predicted, being located away from the mobile money booth is associated with a significant reduction in household per capita consumption. The probability, number and total value of remittances received, as measures of remittances, are reported in columns 2, 3 and 4, respectively. Results are consistent with those reported in our previous estimations. Households in located one kilometer away from the mobile money booth have two percentage point lower probability of receiving remittances (Column 2). Similarly, the frequency and total value of remittances received reduces significantly with an increase in the distance to the mobile money agent. Note that the treatment variable in this case is a community- level variable and the inclusion of district and time dummies implies that our estimate is a conservative estimate of the true effect of mobile money access as these controls absorb much of the variations in mobile money access. Most importantly, controlling for district and time effects rules out the potentially confounding effect of local access to services that tend to be concentrated in district towns.

[Insert Table 6 here]

D. IV and Tobit Results

Results reported so far rely on the assumption that mobile money is not correlated with the error term conditional on the other controls included in the regressions. However, where this assumption does not hold, both OLS and fixed effects estimates may be biased. As earlier noted, mobile money is potentially endogenous given reverse causality concerns – households may adopt mobile money when they expect to receive remittances. In this section, we account for this endogeneity using standard fixed effects IV method for consumption and Tobit models with a control function approach for remittances. Apart from capturing potential endogeneity, the latter technique takes into account the corner solution problem resulting from the censored nature of our remittance variables, that is, households that never received remittances have no observations for the number and total value of remittances. In the control function version of our Tobit model, we include residuals from the first stage estimation of the determinants of mobile money in the main model. In both methods, we use log of distance to the nearest mobile money agent as an excluded instrument for the potentially endogenous mobile money variable.

The results of these estimation methods are reported in Table 7. Column 1 reports results of the consumption measure using standard fixed effects IV method. Columns 2 through 5 report the Tobit estimates of the number and total value of remittances received. In columns 3 and 5, we combine Tobit with control function methods to control for corner solution and endogeneity problems. Estimates in Column 1 reveal that per capita consumption increases by 69 percent upon adoption of mobile money. Columns 2 and 3 show that mobile money adoption approximately doubles the total value of remittances received while Columns 4 and 5 show that users receive more than one additional remittance relative to non-users. The number of remittances is positively associated with mobile money usage, although the coefficient is not statistically distinguishable from zero at conventional levels of significance. In line

with Mason 2013, the significance of the residual in Columns 3 and 5 not only implies potential endogeneity of the treatment variable but also deals with the problem. We therefore focus on the results in Columns 3 and 5 for our measures of remittances.

[Insert Table 7 here]

E. Alternative Explanations

One might argue that the changes in remittance patterns could have resulted from mobile phone possession which could have enabled rural households to contact their members in towns in times of hardship. If this were the case, then mobile phone possession would be expected to have a positive and significant effect on the flow of remittances among the household members even in the absence of mobile money. In order to explore into this possibility and thus disentangle any impact of mobile phone from that of mobile money, we examined the relationship between mobile phone possession and household per capita consumption and remittances prior to the introduction of mobile money. We therefore run regressions of the outcome variables on a dummy variable of mobile phone possession using 2003 and 2005 data, including a full set of controls as in previous sections. As reflected in Table 8, there is no significant relationship between mobile phone possession on one hand and consumption (Column 1) and remittances on the other (Columns 2 through 5). At best, the remittance impact of mobile phone possession is positive and statistically indistinguishable from zero. This partially rules out the possibility that the observed consumption and remittance changes resulted majorly from mobile phone possession.

VI. Conclusion

Lack of access to financial services is a typical challenge to rural livelihood in many developing countries. Apart from the direct hindrance on the ability to borrow and save, the associated high costs of remitting funds to financially inaccessible areas impose a limit on the effectiveness of informal sharing mechanisms among friends

21 and relatives. Mobile money - a new financial service that allows direct transaction via a mobile phone –serves to bridge this gap given its relatively lower cost and convenience. In Uganda, mobile money adoption has expanded tremendously over the past three years since its inception in 2009. In this paper, we examine the welfare impact associated with this service by estimating its impact on monthly household per capita consumption. Specifically, we provide evidence that households using this financial innovation experience a significant increase in per capita consumption. The result is robust to sensitivity checks, mainly the change in empirical specification. Disaggregating consumption into food, basic and social expenditures, we find stronger impacts of mobile money for the social expenditure measure, partially suggesting investment in informal social and insurance networks and saving mechanisms.

There are a number of potential pathways through which this result might be realized as cited in the literature including the facilitation of savings (Jack and Suri, 2011) and self-insurance through remittances. We provide evidence that the estimated impact is achieved through the facilitation of remittances; households with access to mobile money services are more likely to receive remittances, receive remittances more frequently and receive higher value of remittances relative to non-users. Although we do not explicitly demonstrate due to data limitations, we are convinced, based on anecdotal evidence that the average cost of remitting funds across households reduced greatly with the event of mobile money technology. We further venture into the role of family dynamics by comparing remittance patterns across households with and without members working outside the village. We provide a falsification test that the relationship between this migration measure and remittances did not exist prior to mobile money, suggesting that its emergency after 2009 partially reflects reduction in transaction costs that made it possible for workers to remit funds to their rural households.

The results presented in this paper suggest significant welfare benefits of access to financial services which might go afield in reducing rural poverty through reduction in vulnerability by the rural poor. Dercon (2006) suggests stronger welfare benefits of informal insurance mechanisms if random reductions in consumption affect poverty dynamics through persistent income reduction in incomes. One concern however is that, although we plausibly assume reduction in remittance cost as the major pathway of the welfare and remittance impact of mobile money, we do not test this premise within the limitation of the data. This and the analysis of risk- sharing behavior will form the foundation for further research.

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Table 1: Summary Statistics

Round One (2009) Round Two (2012) Difference (2012-2009) Variable Mean SD Mean SD Mean P-Value ICT use 1 if mobile money used 0.0077 0.0877 0.3848 0.4868 0.3770 0.000

1 if mobile phone owned 0.5216 0.4998 0.7344 0.4419 0.2128 0.000

1 if bank account owned - - 0.2285 0.4201 - -

Wealth Total value of assets (UGX) 604,436 1,728,076 1,048,871 1,904,279 444,434 0.000

Land holding size (acre) 5.3884 7.0656 6.2286 7.8175 0.8402 0.016

Remittances

1 if received remittance 0.5022 0.5003 0.7084 0.4548 0.2061 0.000

No. of remittances 2.3814 4.6654 4.0144 6.2181 1.6330 0.000

Total remittance (UGX) 274,682 723,289 582,546 1,208,951 307,864 0.000

Remittance to Consumption 0.0948 0.2555 0.1013 0 .2638 0.0065 0.618 Ratio

Welfare Per capita consumption (UGX) 58,234 63,328 96,184 115,614 37,950 0.000

Total wage 18,207 68,899 33,840 126,636 15,633 0.001

HH characteristics Head age 50.2920 14.2717 52.1454 14.1744 1.8534 0.006

1 if head is female 0.1291 0.3355 0.1632 0.3697 0.0340 0.040

Head education 6.1044 3.9445 5.7975 3.8438 0.3068 0.097

Household size 7.5408 3.3399 7.9901 3.7703 0.2733 0.077

Village characteristics

Distance to district town (km) 14.7326 11.6011 9.9685 8.4677 4.7640 0.000

1 if LC1 has MM agent 0.2393 0.4269 0.9912 0.0936 0.7519 0.000

Source: RePEAT data 2009 and 2012. The observations are from 907 balanced panel households.

Table 2: Summary Statistics by Mobile Money Status.

Non-user User Difference (user-nonuser) VARIABLES Mean SD Mean SD Mean P-Value ICT Use 1 if mobile phone owned 0.5532 0.4973 0.9375 0.2424 0.3843 0.000 1 if bank account owned 0.1329 0.3397 0.3811 0.4864 0.2482 0.000 Wealth Total value of assets (Ush) 645,245 1,515,850 1,577,302 2,652,796 932,056 0.000 Land holding size (acre) 5.4873 6.9350 7.1657 9.2227 1.6784 0.000 Remittances 1 if received remittance 0.5612 0.4964 0.7841 0.4120 0.2228 0.000 No. of Remittances 2.6412 4.8584 5.4943 7.3756 2.8531 0.000 Total remittance (Ush) 324,182 819,311 859,394 1,486,692 535,212 0.000 Remittances to Consumption 0.0859 0 .2227 0.1459 0 .3675 0 .0599 0.000 Ratio

Welfare Per capita consumption (Ush) 71,196 97,915 102,274 78,073 31,078 0.000 Total wage 15,855 65,032 67,883 184,116 52,027 0.000 HH Characteristics Head age 50.9789 14.5262 52.2407 13.0762 1.2617 0.138 1 if head is female 0.1431 0.3502 0.1573 0.3646 .01424 0.495 Head education 5.6580 3.8178 7.1908 3.9773 1.5327 0.000 Household Size 7.5667 3.4626 8.5843 3.8779 0.5233 0.007 Village Characteristics Distance to district town (km) 13.1415 10.7637 8.9965 8.0193 4.1450 0.000 1 if LC1 has MM agent 0.5285 0.4994 0.9719 0.1655 0.4433 0.000

Source: RePEAT 2012.

Table 3: Determinants of Household Mobile Money Adoption

(1) (2) Variable Probit FE

1 if mobile phone owned 0.0806*** 0.117*** (0.0142) (0.0273) 1 if HH has migrant worker 0.0349*** 0.0908*** (0.0131) (0.0268) Log of distance to nearest MM agent in km -0.0137*** -0.0442*** (0.00383) (0.0106) HH head’s years of schooling 0.00543*** 0.0115*** (0.00152) (0.00332) Head age 0.00192 0.00471 (0.00234) (0.00472) Head age squared -1.50e-05 -4.16e-05 (2.17e-05) (4.32e-05) Log of land size in acre 0.00207 0.00132 (0.00710) (0.0185) Household size 0.000151 0.000378 (0.00135) (0.00365) 1 if head is female 0.0289 -0.0141 (0.0185) (0.0357) Log value of total assets (UGX) 0.0195*** 0.0248** (0.00485) (0.0114) 1 if year 2012 0.217*** 0.217*** (0.0208) (0.0301) Constant -0.427** (0.189)

Observations 1,745 1,745 R-squared 0.448 Number of households 906 Robust standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.

Table 4A: Mobile money and Household Consumption

Dependent Variable: Household Per capita Consumption

(1) (2) (3) Variable OLS FE FE

1 if mobile money used 0.135*** 0.110* 0.0947*

(0.0394) (0.0565) (0.0565) Constant 9.144*** 8.611*** 9.359*** (0.288) (0.377) (0.383) Time Effects Y Y Y Location*Time Y Y

Observations 1,753 1,753 1,753 R-squared 0.300 0.272 0.379 Number of hhid 914 914 Robust standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1

Table 4B: Mobile money and disaggregated consumption expenditure Dependent Variable: Components of Household Per capita Consumption

Food Expenditure Non-food Basics Social Contributions

Variable OLS FE OLS FE OLS FE (1) (2) (3) (4) (5) (6)

1 if mobile money 0.0977** -0.0129 0.154*** 0.207** 0.563*** 0.474** used (0.0483) (0.0683) (0.0594) (0.0832) (0.117) (0.187) Constant 10.82*** 11.75*** 7.255*** 8.193*** 6.854*** 7.213*** (0.231) (0.295) (0.236) (0.358) (0.668) (0.893)

Observations 1,725 1,753 1,753 1,753 1,725 1,753 R-squared 0.302 0.354 0.303 0.470 0.380 0.373 Number of hhid 914 914 914 Robust standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1

Table 5A: Mobile money and Household Remittances Dependent Variable: Measures of Remittances

Dependent Variable: 1 if Remittances Received No. of Remittances Total Remittances (1) (2) (3) (4) (5) (6) Variable Probit OLS OLS FE OLS FE

1 if mobile money 0.0706* 0.0581* 0.843** 0.940* 0.360*** 0.381* used (0.0399) (0.0324) (0.421) (0.525) (0.133) (0.220) Constant 0.0273 -5.028** -1.772 5.066*** 5.080*** (0.190) (2.441) (3.354) (0.872) (1.253) Observations 1,702 1,729 1,736 1,736 1,736 1,736 R-squared 0.228 0.188 0.261 0.278 0.286 Number of 905 905 households Robust standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1

Table 5B: Mobile Money, Job-seeking and Remittances

Dependent Variable: Measures of Remittances

(1) (2) (3) Variable 1 if Remittances Number of Total Remittances Received Remittances

1 if mobile money used 0.0952** 1.385** 0.428***

(0.0456) (0.629) (0.163) 1 if HH has migrant worker 0.114*** 1.384*** 0.415*** (0.0327) (0.482) (0.138) Constant 2.831 9.607*** (2.315) (0.605)

Observations 1,709 1,736 1,736 R-squared 0.265 Number of households 905 905 Robust standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1

Table 6: Reduced Form Results

(1) (2) (3) (4) VARIABLES Consumption 1 if No. of Total Remittances Remittances Remittances Received

Log (distance to booth) -0.0481** -0.0211* -0.517*** -0.259** (0.0238) (0.0127) (0.182) (0.123) Constant 11.48*** 0.622*** 1.733 9.642*** (0.257) (0.141) (1.687) (1.104)

Observations 1,762 1,750 1,757 1,757 R-squared 0.345 0.216 Number of hhid 915 914 914 Robust standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1

Table 7: IV and Tobit Results. Dependent Variables: Measures of Consumption and Remittances

Consumption Total Remittances No. of Remittances

Variable FE-IV Tobit Tobit-CF Tobit Tobit-CF (1) (2) (3) (4) (5)

1 if mobile money used 0.727* 1.160*** 1.002*** 1.449* 1.253 (0.382) (0.369) (0.372) (0.777) (0.782) Residual 6.357*** 20.84*** (2.244) (7.052) Constant 2.139 6.220** -11.58*** 0.883 (1.902) (2.490) (4.439) (6.281)

Observations 1,664 1,746 1,746 1,746 1,746 R-squared 0.194

Number of hhid 832 Robust standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1

Table 8: Effect of Mobile Phone Possession on Household Consumption and Remittances (2003-2005) (1) (2) (3) (4) Consumption Total Remittances No. of Prob(remit>0) Variable Remittances

1 if mobile phone owned -0.101 -0.250 0.0150 -0.0201 (0.106) (0.475) (0.117) (0.0561) Constant 8.113*** 6.932*** -0.0561 (0.528) (1.868) (0.431) Controls Y Y Y Y Location*Time Y Y Y Y Observations 1,748 1,735 1,735 1,735 R-squared 0.258 0.152 0.429 Number of households 934 931 931 Notes: Robust standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1 The controls included in all the above regressions are; household size, log of asset and land endowments, age, gender and education level of the household head and a dummy for household mobile phone possession. Sample of 2003-2005 used.

Appendix

Table A1: Falsification Test-Consumption, Job-seeking behavior and Remittances (2003-2005 sub- sample)

(1) (2) (3) (4) Variable Consumption 1 if Remittances No. of Total Remittances Received Remittances

1 if mobile money used -0.0650 0.0113 -0.108 -0.0788 (0.0675) (0.0418) (0.238) (0.0708) 1 if HH has migrant worker 0.0245 0.105 -0.0589 (0.0350) (0.243) (0.0697)

Constant 8.222*** 6.967*** -0.0446 (0.533) (1.870) (0.431)

Observations 1,735 1,735 1,735 1,735 R-squared 0.261 0.153 0.431 Number of households 931 931 931 Robust standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1

Rural Push, Urban Pull and... Urban Push?

New Historical Evidence from Developing Countries∗

Remi Jedwab† and Luc Christiaensen‡ and Marina Gindelsky§

January 2014

Abstract: Standard models explain urbanization by rural-urban migration in response to an (expected) urban-rural wage gap. The Green Revolution and rural poverty constitute rural push factors of migration. The Indus- trial Revolution and the urban bias are urban pull factors. This paper offers an additional demographic mechanism, based on internal urban population growth, i.e. an urban push. Using newly compiled historical data on urban birth and death rates for 7 countries from Industrial Europe (1800-1910) and 33 developing countries (1960-2010), we show that many cities of today’s developing world are “mushroom cities” vs. the “killer cities” of In- dustrial Europe; fertility is high, while mortality is much lower. The high rates of urban natural increase have then accelerated urban growth and urbanization in developing countries, with urban populations now doubling every 18 years (15 years in Africa), compared to every 35 years in Industrial Europe. This is further found to be associated with higher urban congestion, possibly mitigating the beneﬁts from agglomeration and providing further insights into the phenomenon of urbanization without growth. Both migration and urban demographics must be considered in debating urbanization.

Keywords: Urbanization; Demographic Transition; Migration; Poverty; Slums JEL classiﬁcation: O1; O18; R11; R23; J11;

∗We would like to thank Paul Carrillo, Carmel Chiswick, Denis Cogneau, Jeremiah Dittmar, Dou- glas Gollin, James Foster, Fabian Lange, William Masters, Jean-Philippe Platteau, Harris Selod, Stephen Smith, David Weil, Anthony Yezer and seminar audiences at EUDN Scientiﬁc Conference (Berlin), George Mason-George Washington Economic History Workshop, George Washington (IIEP and SAGE), Harvard Kennedy School (NEUDC), Paris School of Economics, University Paris 1, the Ur- ban Economic Association meetings (Atlanta) and World Bank-George Washington University Con- ference on Urbanization and Poverty Reduction 2013 for very helpful comments. We thank the Institute for International Economic Policy at George Washington University for ﬁnancial assistance. †Corresponding Author: Remi Jedwab, Department of Economics, George Washington University, 2115 G Street, NW, Washington, DC 20052, USA (e-mail: [email protected]). ‡Luc Christiaensen, Development Research Group, The World Bank, 1818 H St NW, Washington, DC 20433, USA (e-mail: [email protected]). §Marina Gindelsky, Department of Economics, George Washington University, 2115 G Street, NW, Washington, DC 20052, USA (e-mail: [email protected]). 1. INTRODUCTION

Developing countries have dramatically urbanized over the past 60 years (World Bank, 2009). While their urbanization process shares many similarities with the urbanization process of developed countries in the 19th century, the two processes also differ in several dimensions. First, urban growth has been faster in today’s developing world. The Industrial Revolution led to a dramatic acceleration of urbanization (see Figure 1): Europe’s urbanization rate increased from about 15% in 1800 to 40% in 1910. In 1950, Africa and Asia were made up of predominantly low-income, rural countries (urbanization rate around 15%). In 2010, their urbanization rate was around 40%. African and Asian countries have thus experienced the same growth in urbanization as Europe, in half the time. Second, while income growth remains the main driver of urbanization, the world is becoming more and more urbanized at a constant income level. In 1960, the 35 countries whose income per capita was less than $2 a day had an average urbanization rate of 15% (World Bank, 2013). In 2010, the 34 countries with similar incomes had an average rate of 30%. The cities of today’s developing world are also much larger. Mumbay, Lagos and Jakarta have the same population as New York, Paris and London respectively, at a much lower income level. Dhaka, Kinshasa and Manila are urban super-giants located in very poor countries. This raises several questions. Where do these cities come from? Did they grow as a result of migration? Did they grow too fast? In models of urbanization, there is rural-to-urban migration as long as the expected urban real wage is higher than the rural real wage (Harris & Todaro, 1970). This wage gap could be the result of a rural push or an urban pull. There are various rural push factors. If the country experiences a Green Revolution, the rise in food productivity releases labor for the modern sector and people migrate to the cities (Schultz, 1953; Matsuyama, 1992; Caselli & Coleman II, 2001; Gollin, Parente & Rogerson, 2002; Nunn & Qian, 2011; Motamed, Florax & Matsers, 2013). Rural poverty due to land pressure or natural disasters causes rural migrants to ﬂock to cities (Barrios, Bertinelli & Strobl, 2006; da Mata et al., 2007; Yuki, 2007; Poel- hekke, 2010; Henderson, Storeygard & Deichmann, 2013).1 Then there are various urban pull factors. If the country experiences an Industrial Revolution, the urban wage increases, which attracts workers from the countryside (Lewis, 1954; Hansen & Prescott, 2002; Lucas, 2004; Alvarez-Cuadrado & Poschke, 2011). A country that exports natural resources also urbanizes if the resource rents are spent on urban goods and services, causing the urban wage to rise (Gollin, Jedwab & Vollrath, 2013; Jedwab, 2013). If the government adopts urban-biased policies, the urban wage also increases (Lipton, 1977; Bates, 1981; Ades & Glaeser, 1995; Davis & Hen- derson, 2003; Majumdar, Mani & Mukand, 2004; Shifa, 2013). While the Green Revolution, Industrial Revolution and resource exports theories ﬁnd that urbanization is associated with economic development, the rural poverty and urban bias theories imply that urbanization may occur without growth (Fay & Opal, 2000). All these theories assume that urbanization comes from migration only.

1Overoptimistic expectations about the incomes migrants can earn at the destination location also create excessive migration pressure (McKenzie, Gibson & Stillman, 2013; Farré & Fasani, 2013). 1 In this paper, we offer an additional mechanism for urbanization based on an urban push. Many cities of today’s developing world can be classified as “mushroom cities” vs. the “killer cities” of the developing world of the 19th century; fertility is high, while mortality has fallen to low levels, due to the epidemiological transition of the 20th century. This has led to a high rate of natural increase in urban areas. First, we show that the urban push has accelerated urban growth and urbanization in developing countries, conditional on income. Second, we show that fast urban growth is associated with more congested cities, which has implications for economic development. We use the expression “urban push” as opposed to the “rural push” and “urban pull”. “Rural push” implies that rural workers are pushed to the cities by changes in rural economic conditions. “Urban pull” implies that rural workers are attracted to the higher-wage cities. “Urban push” suggests that cities are growing internally and “pushing” their own boundaries. It is not that urban workers are being pushed to the countryside, but rather, high urban rates of natural increase are creating an urban population “push”. Our analysis consists of three steps. First, we provide historical evidence on the rapid growth of cities in today’s developing world. The growth rate of the urban population has been about 4% a year in developing countries post-1960, vs. 2.0% a year in Industrial Europe in 1800-1910 (see Figure 2). We then use various historical country-level sources to create an ex- tensive new data set on the crude rates of birth and death separately for the urban and rural areas of 7 European (or Neo-European) countries in the 19th century (every forty years in 1800-1910) and 33 countries that were still developing countries in 1960 (every ten years in 1960-2010). We can thus accurately compare the demographic foundations of the urbanization processes of the old and new developing worlds.2 We show that the fast growth of cities in today’s developing world was mostly driven by natural increase, and not by migration as in Europe. We confirm that the cities of Industrial Europe were “killer cities”, where mortality was high and fertility was low. On the contrary, the cities of today’s developing world are “mushroom cities”, where fertility is high and mortality is low. The resulting difference in urban rates of natural increase caused the population of cities in today’s developing world to double every 18 years (15 years in Africa), compared with 35 years in Industrial Europe. Even if natural increase contributed to urban growth, and raised the absolute number of urban residents, it also contributed to rural growth. The urbanization rate, the relative number of urban residents, may not have risen as a result. Yet simulations suggest it also increased urbanization rates. Second, we use our panel data set on 33 countries (1960-2010) to investigate econometrically the effects of urban natural increase on the speeds of urban growth and urbanization. We show that the stylized facts that have been established by the comparative analysis hold when including country and decade fixed effects, controlling for income growth and the various rural push and urban pull factors that

2Our analysis builds on the previous work of historians and geographers such as Rogers (1978), Keyfitz (1980) and Rogers & Williamson (1982). We complete their preliminary analysis by using historical data on 40 “developing” countries, past and present, in two centuries. First, most economists have focused on the individual cases of England or the U.S. in the 19th century (Williamson, 1990; Haines, 2008). We have been able to collect the same type of data for as many as 7 European countries, which allows us to generalize their results for the old developing world. Second, while there are individual case studies for a few developing countries for selected periods, we have systematically collected the same type of data for 33 countries every ten years from 1960 to 2010. We could not increase the sample size as historical consistent data does not exist for other countries as far back as 1960. The numerous historical sources that we used are described in the Online Data Appendix. 2 are traditionally put forward in the literature, and even adding region fixed effects interacted with a time trend (e.g., Western Africa, Eastern Africa, etc.). The identification then comes from the within-country comparison of neighboring countries of the same region over time. Even if we cannot be sure that our effects are causal (as is often the case with cross-country regressions), we are able to rule out many potential alternative explanations. Since we study an important macro question, we must use macroevidence, even if the effects will not be as well identified as in the microdevelopment literature (see Cohen & Easterly (2010) for a description of how different methodologies can help address different questions). The results also hold when using cross-sectional data for 97 countries that were still developing countries in 1960, but for the most recent period only. Urban natural increase has a strong effect on urban growth and urbanization. A 1 standard deviation increase in the rate of urban natural increase leads to a 0.50 standard deviation increase in the urban growth rate and a 0.30 standard deviation increase in the change in urbanization. We find that differences in urban natural increase explain why urban growth has been faster in today’s developing world, and in Africa in particular. These differences may also contribute to explaining why African and Asian countries have recently experienced the same growth in urbanization as Industrial Europe, but in half the time, and why Africa is relatively urbanized for its income level. The urban push has thus accelerated the speed of urban growth and urbanization. Third, fast urban growth can give rise to urban congestion, which may decrease urban welfare. If capital (e.g., houses, schools, hospitals and roads) cannot be accumulated as fast as population grows, cities grow too fast and the stock of urban capital per capita is reduced. If the urban population of today’s developing world doubles every 18 years, the housing stock also needs to double every 18 years. Congestion effects arise if agents are not investing in advance, whether they are credit-constrained or not forward-looking. Urban labor supply shocks can also lead to a deterioration of urban labor market outcomes. Using a novel data set on urban congestion for a large set of countries, we show that fast urban growth due to natural increase is indeed associated with more congested cities today. The urban push is correlated with a higher proportion of urban population living in slums, lower investment in urban human capital, more polluted cities, and more workers in the urban informal sectors. The evidence suggests a world in which slums develop not just because migrants flock to cities, but also as a result of internal growth. We do not find any effect of the speed of urbanization, as what matters for urban congestion is really the absolute, rather than relative, number of urban residents. Our results are all the more important since fertility remains high in many cities, that will keep growing in the future. There are still 30 countries where the urban population doubles in less than 18 years, indicating the scope of the problem. The paper also contributes to the literature on urbanization and growth. There is a strong correlation between development and urbanization, because of the two-way relationship between them. On the one hand, countries urbanize when they develop (Overman & Venables, 2005; Henderson, 2010; Henderson, Roberts & Storeygard, 2013). On the other hand, agglomeration promotes growth (Rosenthal & Strange, 2004; Glaeser & Gottlieb, 2009; Henderson, 2010). Given that urbanization is a form of agglomeration, cities could promote growth in developing countries (Du- ranton, 2008, 2013; World Bank, 2009). Urban natural increase can, however, create a disconnect between urbanization and growth. First, poor cities can expand even without an increase in standards of living. We provide an explanation 3 for over-urbanization, additional to the existing theories of urban bias and rural poverty. Second, because natural increase accelerates urban growth, it can give rise to urban congestion effects, which may reduce the benefits from agglomeration. The speed of urban growth is, to our knowledge, a dimension of the urbanization process that has been understudied in the economics literature. All in all, urban natural increase in poor countries may have thus directly contributed to the “urbanization of poverty”, the fact that the urban areas’ share of the world’s poor has been rising over time (Ravallion, 2002; Ravallion, Chen & Sangraula, 2007). Third, whether urban growth is driven by migration or natural increase has strong policy implications. When urban congestion is the result of excessive migration, it may not be justified to invest in urban infrastructure, as it could further fuel migration. However, if urban growth is due to urban natural increase, the resulting immediate increase in the urban population necessitates investment in urban infrastructure. If agents do not internalize the negative externalities associated with their fertility decisions, another policy option may be to encourage lower urban fertility rates. Lastly, we have created a consistent data set that will allow researchers to systematically study the urbanization process across space and time. Bandiera, Rasul & Viarengo (2013) provide another example of how collecting historical demographic data can help us revisit issues that are still extremely relevant today. Our findings also advance the literature on the effects of demographic growth. Population growth promotes economic growth if high population densities encourage human capital accumulation or technological progress (Kremer, 1993; Becker, Glaeser & Murphy, 1999; Lagerlöf, 2003). However, population growth has a negative effect on per capita income if capital (e.g., land) is inelastically supplied. Any positive income shock is then temporary; fertility increases and mortality decreases, so that any increases in the stock of capital (and income) per capita are eventually negated. Income is stable and low in the long-run.3 Countries only develop if technology progresses and the demographic transition limits population growth (Galor & Weil, 1999, 2000; Hansen & Prescott, 2002). If the economy is Malthusian, any increase (decrease) in population decreases (increases) the capital-labor ratio and per capita income.4 In this paper, we use an increase in population, studying it from the perspective of cities. Second, since urban space is constrained, the potential for congestion effects is high. Third, there are few studies of the effects of population growth in Africa (Young, 2005; Ashraf, Weil & Wilde, 2011; McMillan, Masters & Kazianga, 2011). We show that African cities will keep growing at a fast pace in the future, which has implications for the growth process of the continent. The paper is organized as follows: Section 2 offers a framework to analyze the effects of urban natural increase. Section 3 presents the historical background and the data. Sections 4, 5, and 6 show the effects of urban natural increase on urban growth, urbanization and urban congestion respectively. Section 7 concludes.

3During the Malthusian growth regime, the most advanced societies have larger populations, but not signiﬁcantly higher incomes (Diamond, 1997; Ashraf & Galor, 2011; Vollrath, 2011). 4A few studies have examined the effects of disease eradication on mortality, population growth and economic development (Acemoglu & Johnson, 2007; Bleakley, 2007; Bleakley & Lange, 2009; Bleakley, 2010; Cutler et al., 2010). Other studies have looked at the effects of decreases in population on development, whether these are caused by disease, war or fertility restrictions (Young, 2005; Voigtländer & Voth, 2009; Ashraf, Weil & Wilde, 2011; Voigtländer & Voth, 2013a,b). 4 2. CONCEPTUAL FRAMEWORK This section provides a simple framework to analyze the relationships between natural increase, migration, urban growth, urbanization and urban congestion. 2.1 Urban Natural Increase and Urban Growth

Urban growth consists of four components: urban natural increase, rural-to-urban migration, international-to-urban migration and urban reclassification. There are rural (international) migrants as long as the urban wage is higher than the rural wage (wage in the country of origin). We abstract from the issues of expectations, prices and amenities to simplify the analysis. The wage gap could be the result of an urban pull or a rural push. Lastly, rural land is reclassified as urban when villages are absorbed by a city, or when a locality becomes urban given the urban definition. In many countries, a locality is considered urban if its population size exceeds a certain population threshold. The equations of urban and rural growth are:

U popt = Unit U popt + Rmigt + IUmigt + U rect (1) 4 ∗ Rpopt = Rnit Rpopt Rmigt + IRmigt U rect (2) 4 ∗ − − where U popt ( Rpopt ) is the growth of the urban (rural) population in year t, Unit4(Rnit ) is the4 urban (rural) crude rate of natural increase in year t, U popt (Rpopt ) is the urban (rural) population at the start of year t, Rmigt is the number of net rural-to-urban migrants in year t, IUmigt (IRmigt ) is the number of net international-to-urban (rural) migrants in year t, and U rect is the number of rural residents reclassified as urban in year t. The urban (rural) crude rate of natural increase is the urban (rural) crude birth rate minus the urban (rural) crude death rate. If urban (rural) fertility is higher than urban (rural) mortality, the urban (rural) rate of natural increase is positive, and the urban (rural) population expands. Equation (1) must be divided by the urban population at the start of year t to be expressed in percentage form. The number of “residual migrants” (Migt ) is defined as the sum of rural migrants, international migrants and rural residents reclassified as urban. The urban growth rate is thus equal to the sum of the rate of urban natural increase (Unit ) and the “residual migration” rate (Migt /U popt ):

U popt /U popt = Unit + Migt /U popt (3) 4 2.2 Urban Natural Increase and Urbanization

The urbanization rate at the start of year t, Ut , is the ratio of the urban population U popt to the total population Popt . The change in the urbanization rate in year t, Ut , is positive if urban growth is faster than rural growth. Even if natural increase4 contributes to urban growth, it also contributes to rural growth. For countries that are mainly rural, rural natural increase disproportionately augments the size of the rural population: Rnit Rpopt Unit U popt , even if Rnit Unit , because Rpopt U popt . Therefore, natural increase≥ reduces the urbanization≤ rate for a predominantly≥ rural country. As the country becomes more urbanized, the contribution of urban natural increase to urbanization rises. In countries that are already urbanized, this contribution declines, as there is less room to grow. We expect an inverted-U relationship between the change in urbanization and urban growth. To study this relationship, we decompose the change in the urbanization rate using the equations above. N nit is the national rate of natural increase in year t. The other

5 variables are the same as above. We obtain the following equations: U pop U pop U pop Rpop U pop Rpop U t+1 t t+1 t t t+1 (4) t = Pop Pop = Pop Pop Pop Pop 4 t+1 − t t+1 t − t t+1

(1 + Unit )U popt + Migt (1 + Rnit )Rpopt Migt Ut = (1 Ut ) Ut − (5) 4 − (1 + N nit )Popt − (1 + N nit )Popt

Ut Migt Ut = [(1 Ut )(Unit Rnit ) + ] (6) 4 (1 + N nit ) − − U popt The change in urbanization positively depends on the differential between the ur-

ban and rural rates of natural increase (Unit vs. Rnit ) and the “residual migration” rate (Migt /U popt ). It also depends on the initial urbanization rate (Ut ) and aggregate natural increase (N nit , which is a function of Rnit , Unit and Ut ). To study the potential effect of urban natural increase, we simulate equation (6) using the following parameters: Rni = 2.5% and Migt /U popt = 1.5% per year. These values have been chosen based on the comparative analysis in section 3.7. We use Uni = 0.5% as a benchmark to see how raising the urban rate of natural increase alters urbanization. Figure 3 shows the results of the simulation for ﬁve values of Unit = 1; 1.5; 2; 2.5; 3 , given an initial urbanization rate Ut . The effects are large. Increasing{ the urban rate} of natural increase from 0.5% to 3% raises the change in the urbanization rate by 0.45 percentage points on average. As aforementioned, the effects are higher for median values of the urbanization rate. 2.3 Urban Natural Increase and Urban Congestion

Cities grow too fast if urban population grows faster than urban capital, and the stock of capital per capita decreases. Various types of capital could be accumulated: physical and human capital, the housing stock, or transport infrastructure. Assuming that capital cannot be accumulated as fast as population grows, fast urban growth leads to urban congestion. For example, raising the urban rate of natural increase from 0.5% to 3%, given a migration rate of 1.5%, causes the urban population to double every 15 years, instead of 35 years. Then, the urban housing stock also needs to double every 15 years. This is possible if the urban growth is not unexpected, agents are forward-looking, and have sufﬁcient credit available to make the investment. If not, congestion effects are likely to arise when urban growth is fast. We expect a lower effect of the change in urbanization, as what matters for urban congestion is the absolute, rather than relative, number of urban residents. Though urban congestion may reduce future migration, migration may still remain high as it depends on the difference between rural and urban welfare. 2.4 Empirical Considerations

Urban natural increase may determine the speeds of urban growth and urbanization. The speed of urban growth is then a factor of urban congestion. We now discuss various issues regarding the empirical analysis of these relationships. Dynamic model. Equation (3) assumes that the relationships between urban growth and its two components are additive. When estimating this relationship empirically, the coefﬁcient of the rate of urban natural increase could be equal to one. However, we could imagine that urban natural increase and migration inﬂuence themselves

6 and each other dynamically, which could bias (downward or upward) the coefficient of the urban rate of natural increase. Four relationships should be considered: (i) Migt = f (Migt 1): High migration rates have a dissuasive effect on future migration, if the migrants− crowd out the cities, or if the pool of potential migrants is reduced, (ii) Unit = g(Migt 1): Urban residents adjust their fertility rates if migrants crowd out the cities. However,− migration may actually have a positive effect on future urban fertility if urban congestion impoverishes everyone, which prevents any adjustment in fertility. Fertility is indeed higher in poorer contexts, because of the trade-off between child quantity and child quality. Besides, a high share of migrants in the urban population also affects urban fertility and mortality if it alters the age structure of the cities. If migrants are of reproductive age, migration also increases future urban fertility, (iii) Migt = h(Unit 1): Urban natural increase has a dissuasive effect on future migration, if the urban− newborns crowd out the cities, and (iv) Unit = j(Unit 1): Urban residents adjust their fertility rates if urban newborns crowd out the cities.− However, urban natural increase may actually have a positive effect on future urban fertility if urban congestion impoverishes everyone, which prevents any adjustment in fertility. Lastly, urban natural increase could also affect the age structure of the cities. We will control for these four dynamic relationships in the analysis to test the additivity and causality of the effects. Urban reclassification. Births and deaths are usually registered depending on the main place of residence. This location is classified either as urban or rural, which permits the estimation of urban and rural birth and death rates. This is important when distinguishing the effects of natural increase and migration. For example, a child who is born in an urban family is counted as “urban”, no matter whether the family moved to the city twenty years prior or just the year before the census. The family contributes to the urban population, because it lives in a city. However, a child that follows her parents when they migrate to a city is also counted as a rural migrant. There could be composition effects as argued above, hence the need to control for past migration.5 Urban reclassification could then be higher in countries where the urban rate of natural increase is high, since the rural rate of natural increase could also be high in such countries (U rect = ϕ(Rnit )). Fast rural growth could increase overall population densities, and the largest villages could become cities. Or it could increase the pool of potential rural migrants. Another possibility could be that, in countries where urban growth is fast due to natural increase, cities disproportionately absorb their surrounding rural areas when they expand spatially (U rect = χ( Ut 1)). These mechanisms could lead to an upward bias, if urban reclassification4 is− indeed more important in countries where urban natural increase is high. Therefore, it will be essential to control for the effects of rural natural increase and urban growth on future urban growth via urban reclassification. Causality. Though the previous analysis treats urban natural increase as exogenous, it could be endogenously determined by the economic conditions in the cities (i.e., the urban wage). We will show in section 3.3 that urban mortality does not vary much across countries, and that urban fertility is the main determinant of urban natural increase. Many low-income countries have not yet completed their urban fertility transition. Higher returns to education in fast-growing countries have somewhat

5The numbers of urban newborns and residents are estimated using permanent residence. Tem- poral migrants contribute to the rural population, and their newborns are counted as “rural”. In our analysis, we focus on permanent residence, since this is what matters for urbanization.

7 modified the trade-off between child quantity and quality in favor of child quality. We could thus expect higher urban fertility rates in poorer and less urbanized countries. In accordance with convergence, less urbanized countries should urbanize faster than more urbanized countries. This could give rise to multiple equilibria. In countries that have already achieved their urban fertility transition, urban growth is slower, and urban congestion effects are limited. If urban congestion (e.g., road congestion) reduces urban productivity, growth in these areas is only slightly affected by congestion. If income remains high, fertility stays low. Countries in which urban fertility is high experience fast urban growth. If urban growth is too fast, urban congestion effects kick in, which lower urban productivity. If income is low, urban fertility remains high, and urban fertility and urban congestion reinforce each other. The urbanization rate will not increase if rural growth is also high, as rural fertility does not adjust. That is why it will be important in our empirical analysis to compare countries with similar initial income and urbanization levels, but whose rates of urban natural increase differ. This will not solve the endogeneity issue, but this will allow us to show that urban natural increase is associated with the urban outcomes, conditional on the feedback mechanism discussed above. In the panel analysis, we will also include country and decade fixed effects, controls for the rural push and urban pull factors of urbanization as well as the relationships discussed above, and even region fixed effects interacted with a time trend. The effect is not causal if there are still unobservable factors that explain why urban natural increase and the urban outcomes are correlated over time within countries, relative to the neighboring countries of the same region, conditional on the numerous controls we include. While we cannot be sure that our effects are entirely causal, we are thus able to rule out many potential alternative explanations.

3. DATA AND BACKGROUND We now discuss the historical background and the data we use in our analysis. The Online Data Appendix contains more details on how we construct the data. 3.1 New Data for Developing Countries, 1700-2010

In order to analyze the contribution of urban natural increase to urban growth and urbanization, we need historical data on urbanization, urban fertility and urban mortality for the developing worlds of the 19th and 20th centuries. First, we com- pile data from various sources to reconstruct the urban growth and urbanization rates for 19 European and North American countries from 1700-1950 (about every forty years), and 116 African, Asian and non-North American countries that were still developing countries in 1960, from 1900-2010 (about every ten years). This allows us to compare the urbanization process of ﬁve “developing” areas: “Indus- trial Europe” (which includes the United States in our analysis), Africa, Asia, Latin America (LAC) and the Middle-East and North Africa (MENA). Second, we obtain historical demographic data for 40 of these countries: 7 European countries for the 1700-1950 period (about every forty years), and 33 countries in Africa (10), Asia (11), the LAC region (8) and the MENA region (11) for the 1960-2010 period (about every ten years). For each country-period observation, we obtained the national, urban and rural crude rates of birth, crude rates of death and crude rates of natural increase (per 1,000 people). Since historical demographic data was not readily available, we recreated the data ourselves using various historical sources,

8 as well as the UN Statistical Yearbooks and various reports of the Population and Housing Census, the Fertility Surveys and the Demographic and Housing Surveys of these countries.6 We then collect the same type of data for as many countries as possible that were still developing countries in 1960 (N = 97 out of the full sample of 116 countries), but for the most recent period only (for the closest year to the year 2000). We also have demographic data for the largest city only. 3.2 Patterns of Urbanization in Developing Countries, 1700-2010

The most advanced civilizations before the 18th century had urbanization rates of around 10%-15% (Bairoch, 1988). When a few countries industrialized, their urbanization rates dramatically increased, usually from 10% to 40%. Figure 1 shows the urbanization rate for Industrial Europe from 1700-1950 (using the full sample of 19 countries). The urbanization rate was stable (around 12.5%) until 1800 and increased to 41.3% in 1910. Countries that industrialized earlier also urbanized earlier. Figure 1 also shows the urbanization rate for four developing areas (using the full sample of 116 countries): Africa, Asia, LAC and MENA. The LAC region had already surpassed the 40% threshold in 1950, while the MENA region did not surpass it until 1970. In 1950, Africa and Asia were made up of predominantly low-income, rural countries (urbanization rate around 10%). In 2010, their urbanization rate was around 40%. In our analysis, we focus on the 1800-1910 period for Europe and the 1960-2010 period for Africa and Asia. During these periods, the urbanization rates of the three areas increased from 10% to 40%. 3.3 Urban Growth Rates in Developing Countries, 1700-2010

Figure 2 shows the urban growth rate for Industrial Europe from 1700-1950 (N = 19). It peaked in the late 19th century and declined in the 20th century. In the 1800-1910 period, the overall urban growth rate was 2.0% per year. Figure 2 also shows the urban growth rate for the four developing areas from 1900-2010 (N = 116). The urban growth rate has been 3.8% on average in today’s developing world post-1960, and 4.7% a year in Africa, compared to 3.4%, 3.2% and 4.0% in Asia and the LAC and MENA regions respectively. An urban growth rate of 3.8% (or 4.7% as seen in Africa) implies that cities double every 18 (15) years, while a rate of 2.0%, as seen in Europe, means that cities double every 35 years. These rates peaked in the 1950s or 1960s, with the acceleration of rural migration and the demographic transition. They have been declining since, although they are still high today. We obtain similar urban growth rates when considering the largest city only. We now use our data to provide descriptive evidence on the respective contributions of natural increase and migration to urban growth and urbanization for the 40 countries for which we have historical demographic data. 3.4 The “Killer Cities” of Industrial Europe

We use data for 7 countries from 1700-1950 to explain the concept of “killer cities” (Williamson, 1990). We focus on English cities as a classical example. Demographic patterns in English cities have been described by Williamson (1990), Clark & Cum- mins (2009) and Voigtländer & Voth (2013b). We add to this literature by collecting

6The list of the 40 developing countries that we use in the main analysis, and the data sources for each country are reported in the Online Data Appendix and Online Appendix Tables 1, 2 and 3. We could not increase the sample size as historical consistent data does not exist for other countries.

9 the same data for 6 other countries, which allows us to generalize the results. Re- sults are shown in Figure 4. Fertility was relatively low in England (about 35 per 1,000 people before 1910).7 Mortality was high, especially in the cities. In the 19th century, the urban death rate was 10 points higher on average than the rural death rate (about 30 vs 20). High urban densities, industrial smoke, polluted water sources and unhygienic practices all contributed to this urban penalty (Williamson, 1990; Voigtländer & Voth, 2013b). As a result, the average rate of urban natural increase was low in 1800-1910, at 5 per 1,000 people (or 0.5%). Online Appendix Table 1 shows that these patterns are present for the six other countries. In all countries, the contribution of urban natural increase to urban growth was less than 0.6% a year in 1800-1910: 0.5% in England vs. 0.5% in Belgium, 0.1% in France, 0.6% in Germany, 0.4% in the Netherlands, 0.3% in Sweden and 0.4% in the United States. The average rate was 0.5% a year for Industrial Europe. 3.5 The “Mushroom Cities” of The Developing World

We use data on 33 countries from 1960 to 2010, to explain the concept of “mushroom cities”. Figure 5 plots the urban and rural birth rates for the four developing areas in 1960-2010.8 Initially, urban fertility was high in developing countries, and in Africa in particular (about 50 per 1,000 people). Urban fertility rates decreased almost everywhere post-1960, yet they remain high in Africa (about 35). Figure 6 then plots the urban and rural death rates from 1960-2010.9 In 1960, urban death rates were already low in most of the developing world, around 10-20. Acemoglu & Johnson (2007) show that the epidemiological transition of the mid 20th century (e.g., the discovery and consequent mass production of penicillin in 1945) and massive vaccination campaigns in the colonies resulted in widespread and signiﬁ- cant declines in mortality. The acceleration of urban growth in the 1950s illustrates this phenomenon (see Figure 2). The colonizers also invested in health, educational and transport infrastructure, which led to higher standards of living, as shown by anthropometric and other development outcomes (Moradi, 2008; Huillery, 2009; Jedwab & Moradi, 2013). Cities were centers of diffusion of innovation, explaining why urban mortality was low initially. Differences in urban natural increase are thus driven by differences in urban fertility. While urban mortality does not vary much across countries, urban natural increase is highly correlated (correlation coefﬁcient of 0.93) with urban fertility, whose variance is much higher (Online Appendix Fig- ure 2 shows this for 97 countries). Figure 7 then shows the rates of natural increase from 1960-2010. These rates were high both for the cities and the countryside across all regions in 1960 and have been decreasing since. While urban natural increase was high in the LAC and MENA regions in 1960, these areas have almost

7Most European countries were then characterized by the “European Marriage Pattern”, in accordance with which women married late and fertility was lower (Hajnal, 1965). What explains this speciﬁc pattern is unclear, but Voigtländer & Voth (2013a) show how the Black Death in the 14th century had a long-term impact on marital and fertility patterns. 8The birth rate is a function of the total fertility rate and the number of women of reproductive age. The urban fertility rate is the main determinant of urban birth rates. For 97 developing countries for which we have data for the closest year to the year 2000 in the interval 1990-2010, the correlation coefﬁcient between the two variables is 0.93 (see Online Appendix Figure 1). 9The death rate is a function of the child mortality rate (0-5 years), the youth mortality rate (5-15 years) and the adult mortality rate (15 and above years). At the cross-country level in developing countries, child mortality is the main factor of aggregate mortality. We focus on the period 1960- 2010, while HIV-related adult mortality only became a major concern in the 2000s. For example, in Southern Africa, the average prevalence rate was about 20% in 2000 and 2010, but 2.5% in 1990.

10 completed their fertility transition. Asia started its transition earlier. Then, urban natural increase is still more important in Africa in 2010 than it was in Asia in 1960. African cities will keep growing due to natural increase for several decades. 3.6 Urban Natural Increase and Urban Growth

We use equation (3) to decompose urban growth into urban natural increase and residual migration for the 40 countries. Figure 3 shows the decomposition in Eng- land from 1700-1910. Urban growth was driven by migration, while the contribution of natural increase was small. England could not have urbanized without rural residents migrating to unhealthy urban environments. Results from the six other countries conﬁrm these patterns (see Online Appendix Table 1). During the 1800- 1910 period, Industrial Europe’s urban growth was 2.2% per year, while the urban rate of natural increase was 0.5%. The difference, about 1.7%, was accounted for by residual migration. Figure 8 shows the decompositions for the four developing regions (N = 33), as well as the decompositions for England (1700-1950) and the developing world (1960-2010) (see Online Appendix Table 2 for each country). Migration rates, which average 1.6%, were not different in developing countries (post-1960) from Industrial Europe. The difference in urban growth (3.8% vs. 2.2%) comes from urban natural increase (2.3% vs. 0.5%), which accounted for almost two thirds of urban growth post-1960. Urban growth was faster in Africa (4.9%) than in the MENA region (3.6%), Asia (3.5%) and the LAC region (3.1%) because the urban rate of natural increase was also higher. While it was 2.9% on average in Africa, it was 2.6% in the MENA region, 1.6% in Asia and 2.2% in the LAC region. Therefore, across space and time, the contribution of migration to urban growth was around 1.5% per year. Countries differed in their urban growth as a result of urban natural increase only. For example, using an urban rate of natural increase of 2.9% (1.6%), as in Africa (Asia), a family of four migrants in 1960 becomes a family of about ﬁfty (thirty) urban residents in 2010. 3.7 Urban Natural Increase and Urbanization

Europe and the four developing areas widely differed in their urban rates of natural increase. On average, their rural rates of natural increase were much more similar: around 2% in Europe and Asia, and 2.5% in other regions. In Figure 3, we simulated equation (6), using the following parameters: Rnit = 2.5% and Migt /U popt = 1.5% per year. We used Uni = 0.5% as a benchmark, and showed the results of the simulation for ﬁve values of Unit = 1; 1.5; 2; 2.5; 3 , given an initial urbanization rate Ut . This allows us to compare the{ potential effects} of urban natural increase ceteris paribus for East Asia (Unit 1%), Asia (1.5%), the LAC region (2%), the MENA region (2.5%), and Africa≈ (3%), relative to Europe (0.5%). The annual effects are potentially large (e.g. 0.2 points of urbanization for Africa, given an initial urbanization rate of 10%). The larger the urban rate of natural increase, and the closer to 50% the initial urbanization rate, the larger the effect on urbanization. In 2010, Africa’s urbanization rate was about 40% and urban natural increase was 2.5%. The urbanization rate could increase to 45% in 2020.

4. RESULTS ON URBAN GROWTH In this section, we use econometric regressions and our panel data for 33 countries (1960-2010) to investigate the effects of urban natural increase on urban growth.

11 4.1 Main Results We use panel data for 33 countries that were still developing countries in 1960. We run the following model for t = [1960s, 1970s, 1980s, 1990s, 2000s]:

U grc,t = α + βUnic,t + γc + δt + uc,t (7) where U grc,t is the annual urban growth rate (%) of country c in decade t. Our variable of interest is the urban rate of natural increase (per 100 people, or %) of country c in decade t (Unic,t ). All regressions include country and decade fixed effects (γc; δt ). The country fixed effects control for time-invariant heterogeneity at the national level. The identification of the effect then comes from decadal variations in urban natural increase within countries. Table 1 presents the results. Column (1) shows that urban natural increase has a strong effect on urban growth (0.95***). In column (2), we show that this effect is robust to controlling for log GDP per capita and the urbanization rate at the start of the decade, and log GDP per capita at the end of the decade. First, poor countries have a high fertility rate (they have not completed their fertility transition yet) and their cities will grow faster since they are initially smaller. Controlling for initial income and urbanization adjusts for these convergence effects. Second, since we are controlling for income at the end of the decade, our effects are estimated conditional on contem- porary income and income growth during the decade. This allows to measure the contribution of urban natural increase to urbanization without growth. There are several alternative theories for urbanization in developing countries that may make the results in columns (1) and (2) spurious. We include four area fixed effects (Africa, Asia, LAC and MENA) interacted with a time trend to control for time-variant heterogeneity at the continental level. We also control for the various rural push and urban pull factors mentioned in the conceptual framework. Includ- ing income in the regression controls for the Green and Industrial Revolutions, as the structural change literature has shown how they were highly correlated. We also include the following controls at the country level: (i) Green Revolution (rural push): average cereal yields (hg per ha) in the same decade; (ii) Industrial and Service Revolutions (urban pull): the share of manufacturing and services in GDP (%) 2010 interacted with decade fixed effects (the same share is missing for too many countries in earlier decades); (iii) natural resource exports (urban pull): the share of natural resource exports in GDP (%) in the same decade; (iv) rural poverty (rural push): rural density (1000s of rural population per sq km of arable area), the number of droughts (per sq km), and an indicator equal to one if the country has experienced a civil or interstate conflict in the same decade to control for land pressure and disasters; and (v) urban bias (urban pull): an indicator equal to one if the country’s average combined polity score is strictly lower than -5 (the country is then considered autocratic according to Polity IV), and the primacy rate (%) - an alternative measure of urban bias - in the same decade. The urban bias was indeed stronger in more autocratic regimes (Ades & Glaeser, 1995; Shifa, 2013). The inclusion of area fixed effects (column (3)) and controls (column (4)) does not alter the positive association of urban growth with urban natural increase. In column (5), we include ten region fixed effects (Central Africa, Eastern Africa, Southern Africa, Western Africa, East Asia, South-East Asia, South Asia, Oceania,

12 the Caribbean, Central America, South America, Middle-East and North Africa) interacted with a time trend, to control for time-variant heterogeneity at the regional level. The effect is then identified by comparing neighboring countries of the same region over time. The effect is almost equal to one now (1.01***). This suggests that the relationship between urban growth and urban natural increase is additive. A 1 standard deviation increase in the urban natural increase rate leads to a 0.51 standard deviation increase in the urban growth rate. Then, if the urban rate of natural increase of today’s developing world had been the same on average as in the developing world of the 19th century (2.3 vs 0.5), its average annual urban growth rate would have been 2.1% instead of 3.8% ceteris paribus, and thus almost the same as in Industrial Europe (2.2%). Likewise, if Africa’s urban rate of natural increase had been the same on average as in Asia in 1960-2010 (2.9 vs 1.7), its average annual urban growth rate would have been 3.7% instead of 4.9% ceteris paribus, and thus almost the same as in Asia (3.9%). In column (6), we decompose the urban rate of natural increase into the urban birth rate and the urban death rate. Both rates have a strong effect on urban growth (0.98*** and -1.12**). 4.2 Robustness Robustness. The results of various robustness checks are displayed in Table 2. Column (1) replicates the main result from column (5) of Table 1 (the effect was 1.01***). In columns (3)-(7), we add variables estimated in decade t-1 and lose one round of data (N = 132 instead of 165). We thus verify in column (2) that the baseline effect is unchanged when dropping this round (1.05***). In column (3), we show that the effect remains the same (1.02***) when controlling for residual migration and urban natural increase in the previous decade. As discussed in the conceptual framework, there are four dynamic relationships that should be considered. We do not find a significant effect of lagged natural increase and migration on urban natural increase (Unic,t ) or on residual migration (Migrc,t ) (columns (6) and (7)). The relationship between urban growth and urban natural increase is additive. In column (4), we include the annual urban growth rate in decade t-1 (the sum of the residual migration and urban natural increase rates in t-1). The main effect remains the same (1.02***). To control for countries in which urban growth is fast and cities expand spatially leading agglomerations to absorb surrounding rural areas in the next census year, the lag of urban growth rate is added. However, it is insignificant.10 Including more lags give similar results (not shown, but available upon request), though their inclusion can lead to overfitting given the small number of observations. In column (5), we control for rural natural increase in decades t and t-1, as urban and rural natural increase could be correlated and influence each other. Besides, if rural growth is fast where urban growth is fast, because of rural natural increase, urban growth will be disproportionately associated with urban reclassification. The effect is almost unchanged (1.09***). External validity. One limitation of the panel analysis is that we only employ data for 33 countries. For 64 other countries, we found the urban rate of natural increase for the closest year to 2000. We can run the following cross-sectional regression for (33 + 64 =) 97 countries that were still developing countries in 1960: 10Since we include country fixed effects, we control for the fact that countries use different urban definitions, which affect urban reclassification and urban growth. Urban reclassification is only an issue if it is correlated with changes in urban natural increase within countries, relative to neighboring countries of the same region (as we include region fixed effects interacted with a time trend).

13 U grc,1960 2010 = α0 + β 0Unic,2000 + u0c,1960 2010 (8) − − where U grc,1960 2010 is the annual urban growth rate (%) of country c from 1960- 2010 (i.e., the long− difference). Our variable of interest is the urban rate of natural increase (per 100 people, or %) of country c in 2000 (Unic,2000). Urban demographic data does not exist for many countries before the 1990s. For the 33 countries for which we have historical data, the coefficient of correlation between the urban rate of natural increase in 2000 and the average of the same rate in 1960- 2010 is 0.80. The rate in 2000 can thus be used as a proxy for the rate post-1960. The results are presented in Table 3. The unconditional regression shows a strong effect of urban natural increase on urban growth (column (1)). This effect is robust to: (i) controlling for income and urbanization in 1960, and income in 2010 (column (2)); (ii) adding area fixed effects (column (3)); (iii) including various time-invariant controls at the country level (column (4))11; and (iv) adding region fixed effects (column (5)). The effect in column (5) is lower than 1 (0.76***). The cross-sectional estimates are less reliable than the panel estimates, as the urban rate of natural increase in 2000 is simply a proxy for the same rate in 1960-2010. We should expect the relationship between urban natural increase and urban growth to be less well-measured as a result, which should lead to a downward bias. We also focus on the largest city of these countries. We use the same cross-sectional model as in column (5), except the dependent variable is the annual growth rate (%) of the largest city of each country from 1960-2010, and the variable of interest is the birth rate of this city in 2000 (which we use as a proxy for its rate of natural increase in 1960-2010). We could not find data on the death rate. The largest city’s birth rate has a strong effect on the growth of that city (1.19***, column (6)). The effect is different from 1, but we cannot control for death rates here. There- fore, urban natural increase has accelerated urban growth in developing countries, whether we consider large agglomerations or small and medium-sized cities.

5. RESULTS ON URBANIZATION In this section, we use econometric regressions and our constructed panel data set for 33 countries (1960-2010), as well as cross-sectional data for 97 countries (1960- 2010), to investigate the effects of urban growth, and urban natural increase and residual migration in particular, on the change in the urbanization rate. 5.1 Main Results We use panel data for 33 countries that were still developing countries in 1960. We run the following model for t = [1960s, 1970s, 1980s, 1990s, 2000s]: 11The controls are the same as in Table 1, except we consider the year 2010 or the period 1960- 2010 to estimate the variables, instead of the current decade. The controls are described in the footnote below Table 3. As we cannot include country fixed effects, we also include various time- invariant controls at the country level. First, if countries with high urban fertility rates systematically use different methods for measuring urbanization, the correlations may reflect measurement error. We get around this issue by adding controls for the different possible definitions of cities in different countries: four indicators for each type of definition used by the countries of our sample (administrative, threshold, threshold and administrative, and threshold plus condition) and the value of the population threshold to define a locality as urban when this type of definition is used. Second, we also control for country area (sq km), country population (1000s), a dummy equal to one if the country is a small island (< 50,000 sq km) and an indicator equal to one if the country is landlocked, as larger, non-island and landlocked countries could be less urbanized for various reasons.

14 ∆U r bratec,t = a + κU grc,t + θc + λt + vc,t (9) where ∆U r bratec,t is the change in the urbanization rate (in percentage points) of country c in decade t. Our variable of interest is the annual urban growth rate (%). Our hypothesis is that fast urban growth has raised urbanization rates in developing countries. All regressions include country and decade fixed effects (θc; λt ). The regressions are the same as when urban growth was the dependent variable. Column (1) of Table 4 shows that fast urban growth is associated with higher urbanization rates (2.02***). This effect is robust to: (i) controlling for log GDP per capita at the beginning and the end of the decade (column (2)), which captures the effects of initial income and income growth on the change in urbanization, (ii) adding continent fixed effects interacted with a time trend (column (3)), (iii) including the time-varying controls at the country level (column (4)), and (iv) adding region fixed effects interacted with a time trend (column (5)). In the last specification, the effect is identified by comparing neighboring countries of the same region over time. The effect shows than a 1 percentage point increase in urban growth leads to a 1.91 percentage point increase in the urbanization rate every ten years. This effect is large. A 1 standard deviation increase in the urban growth rate is associated with a 0.90 standard deviation increase in the urbanization rate. As shown in the conceptual framework, there cannot be urbanization without fast urban growth. Urban growth comes from residual migration or natural increase. When using the full specification, we find that the effect of migration is larger than the effect of natural increase (2.02*** vs. 1.21**, column (6))). A 1 standard deviation increase in residual migration (urban natural increase) is associated with a 0.77 (0.30) standard deviation increase in the change in urbanization. While urban natural increase is the main factor of urban growth, migration is the main determinant of urbanization. Recall that a rural migrant has a large effect on urbanization, removing one resident from the countryside (decreasing the rural population by one) and adding this resident to the cities (increasing the urban population by one). Therefore, while migration (i.e., the rural push and urban pull factors) remains the main driver of urbanization, urban natural increase has become a component of urbanization. Since this increase in urbanization is disconnected from income growth, it also produces urbanization without growth. For example, Europe’s urbanization rate increased from 15% in 1800 to 40% in 1910. Africa and Asia realized the same performance in half the time, between 1960 and 2010. Europe’s urbanization rate has risen by about 2.5 percentage points every ten years during the 1800-1910 period. The decadal change was 4.5 percentage points in Africa and Asia post- 1960. On average, the urban rate of natural increase was 1.7 percentage points higher in Africa and Asia than in Europe. Given an effect of 1.21, this gives a difference of about (1.7 x 1.21 =) 2.1 percentage points of urbanization every ten years. Urban natural increase thus contributes to explaining why today’s developing world has urbanized at a much faster pace than the old developing world. It may also contribute to explaining why Africa is relatively urbanized for its income level, since it is the region with the highest urban rate of natural increase. 5.2 Robustness Robustness. The results of various robustness checks are displayed in Table 5. Col- umn (1) replicates the main results from column (6) of Table 4. In columns (3)-(6), we add variables estimated in decade t-1 and lose one round of data. The effect of

15 urban natural increase slightly increases when dropping this round (1.58** rather than 1.21**, column (2)). In column (3), we confirm that the relationship is additive by showing that the natural increase effect remains the same (1.53**) when controlling for residual migration and urban natural increase in decade t-1. In column (4), we control for the urban growth rate in decade t-1, which is the sum of the residual migration and urban natural increase rates in decade t-1. The main effect is almost unchanged (1.41**). The effect is high if we control for the change in urbanization in decade t-1 instead (1.24**, column (5)). The lag of the change in urbanization has a small effect (0.24**). In column (6), we control for rural natural increase in decades t and t-1. The effect of urban natural increase is higher (1.94**). The results of columns (4)-(6) show that urban reclassification is not a major issue here, as the results hold when controlling for past urbanization or rural natural increase. The effect of migration is high and significant across all specifications (2.02-2.29). The effects are robust to controlling for the initial urbanization rate in 1960 interacted with decade fixed effects, to control for convergence effects in urbanization (not shown, but available upon request). Lastly, we test the effect of urban natural increase on the change in urbanization is higher for urbanization rates close to 50%, as seen in the simulation graph (Figure 3). We interact the urban rate of natural increase with a dummy variable equal to one if the urbanization rate at the start of the decade was between 30 and 70%. We find that the natural increase effect is higher for the observations in this interval (not shown). External validity. We also run the following cross-sectional regression model for 97 countries c that were still developing countries in 1960:

∆U r bratec,1960 2010 = a0 + κ0U grc,1960 2010 + vc0,1960 2010 (10) − − − where ∆U r bratec,1960 2010 is the change in the urbanization rate (in percentage − points) between 1960 and 2010, and U grc,1960 2010 is the annual urban growth rate (%) of country c from 1960-2010. We use the− sample of 97 countries for which we know the urban rate of natural increase in 2000. The results are presented in Table 6. The unconditional regression shows a strong effect of urban growth on the change in urbanization (2.29**, column (1)). This effect increases as we: (i) control for income in 1960 and 2010 (column (2)); (ii) add area fixed effects (column (3)); (iii) include various controls at the country level (column (4)); and (iv) add region fixed effects (column (5)). The point estimates are higher in the full specification (5.57***, column (5)), because we correctly control for the other factors of urbanization. The cross-sectional estimates are more sensitive to the specification than the panel estimates, possibly because the panel regressions allowed us to include country fixed effects that already captured these factors well. A 1 percentage point increase in urban growth leads to a 5.57 percentage point increase in urbanization over 50 years, or a 1.11 percentage point increase every ten years. By comparison, the panel regressions showed a 1.91 percentage point increase every ten years. The cross-sectional effect is lower, likely because we estimate the relationship over 50 years rather than over 10 years, which should lead to a downward bias if there are swift changes within countries over time. In column (6), we find that the two subcomponents of urban growth indeed have a positive effect on the change in urbanization. A 1 percentage point increase in urban natural increase (residual migration) leads to a 3.64 (5.97) percentage point increase in urbanization over 50 years, or a 0.73 (1.19) percentage point increase every ten years.

16 6. RESULTS ON URBAN CONGESTION Urban natural increase has thus accelerated urban growth and urbanization in developing countries, conditional on income. If urban growth is too fast, urban natural increase may result in urban congestion. Congestion effects arise from the fact that the urban population grows faster than available urban capital. Population growth may be unexpected, which reduces the stock of capital per capita. Or population growth is expected, but capital cannot be accumulated as fast as the population grows. Urban congestion reduces urban welfare, unless rising population densities produce large agglomeration effects, so that the net effects of this fast urban growth are positive. Panel data on the evolution of urban income over time does not exist, so we cannot test this hypothesis. But we can use cross-sectional data on various measures of urban congestion for the most recent period. 6.1 Fast Urban Growth and Slum Expansion Our main measure of urban congestion is the share of the urban population living in slums (%) in 2005. We have data for 113 countries that were still developing countries in 1960. Slum data was recreated using UN-Habitat (2003) and United Nations (2013) data. We focus our analysis on 95 countries for which we also have data on urban natural increase in 2000. We run the following cross-sectional regression:

Slumc,2005 = b + φU grc,1960 2010 + π U r bratec,1960 2010 + wc,2005 (11) − 4 −

where Slumc,2005 is the slum variable (%), U grc,1960 2010 is the annual urban growth − rate (%) between 1960 and 2010, and U r bratec,1960 2010 is the change in the urbanization rate (%) between 1960 and4 2010.12 The hypothesis− is that countries in which the urban population grew faster in the past have larger slums today. More precisely, if the urban population doubles every 18 years, the housing stock must be doubled every 18 years as well. This implies that agents invest now in order for the required housing stock to be available in 18 years. Otherwise, there will be congestion effects in housing markets. Slum expansion results from fast urban growth, whether because migrants flock to the cities, or because urban natural increase accelerates urban growth. The change in the urbanization rate should have a lower effect, since what matters for urban congestion is the absolute, rather than relative, number of urban residents. There are three caveats to our analysis. First, we rely on cross-sectional estimates, as data is not available for a sufficient number of countries before 2005. Though data collection on slums began in 1990, 2005 is the first year in which it was systematic across countries.13 Second, we assume that slum expansion is a good measure of housing congestion. If urban growth has been fast in the developing world, urban land expansion has also been fast (Angel et al., 2010; Seto et al., 2011). In many countries, urban areas grew faster than urban population, and urban densities decreased. Does that imply that housing supply increased faster than urban population? On the contrary, the fall in urban densities is a symptom of urban housing shortages. Wealthier cities are characterized by high densities, because people work and live in multi-storey buildings.

12 The summary statistics of Slumc,2005 are: mean: 49.3; std. dev. 32.3; min: 0; max: 99.4. 13Congestion effects should be larger for large agglomerations, as their growth is higher in absolute numbers, for a more constrained urban space. However, we do not have data on congestion for speciﬁc cities, and must use data for all cities instead.

17 In poor countries, the scarcity of multi-storey buildings forces people to move to the outskirts of their cities. There, people build one-storey shacks, thus producing a continuous decline in urban densities. Slum expansion is the right measure of per capita housing congestion. Third, we cannot be sure that the effects are causal. The correlation is spurious if urban fertility is higher in poorer countries that have not completed their fertility transition yet, and if cities in poorer countries have larger slums. Thus it is important to control for income in all regressions. Even if we control for many observable factors such as income, we cannot control for unobservable factors. Congested cities are less functional, which could then prevent any adjustment in urban fertility rates for reasons other than low urban incomes. If these reasons are not captured by the controls and the region fixed effects, the effects will not be causal. Our objective is more modest, in that we want to char- acterize an equilibrium (or trap) where fast urban growth is associated with urban congestion, no matter whether they reinforce each other. Main Results. The results are displayed in Table 7. Column (1) shows the unconditional results, while we control for income in 1960 and 2010 in column (2). In columns (3) and (4), we also add area fixed effects and the time-invariant controls at the country level. In column (5), we include region fixed effects. The identification comes from comparing neighboring countries within a region over time. The correlation between urban growth and slums holds when using the most demand- ing specification (6.43**, column (5)). A 1 standard deviation increase in urban growth is associated with a 0.32 standard deviation increase in the share of the urban population living in slums. The change in the urbanization rate has no effect. A 1 standard deviation decrease in the income variables (whose coefficients are not shown) is then associated with a 0.40 standard deviation increase in the slum share. Thus, while low income explains slum expansion, fast urban growth may have also contributed to this expansion. Another way to assess the magnitude of these results is to compare across continents. If the urban growth rate had been the same in Africa as in Asia (3.5 instead of 4.9), the slum share would have been 10 percentage points lower (given a mean of 49.3% in the sample). Additional Results. If countries are unable to cope when urban growth is very fast, we could expect non-linearities in the relationship between slums and urban growth. What really matters for slum expansion is the number of years in which an urban population doubles (i.e., the “true” speed of urban growth). An urban pop- t ulation doubles in t years if (1 + U gr/100) = 2. The number of years in which it doubles is then equal to log(2)/log(1+U gr/100). There is thus a convex, decreasing relationship between the true speed of urban growth and the urban growth rate. In column (6), we use the full specification to show that the number of years in which an urban population doubles reduces the slum share (-0.5***). For example, the urban population of today’s developing world doubled every 18 years, compared to every 35 years in Industrial Europe, implying a potential 8.5 percentage point increase in slum share. In column (6), we investigate whether the effect is larger for countries whose average number of years in which the urban population doubles is below the sample mean (about 20 years). The effect for the group of countries experiencing fast urban growth (whose population doubles in less than 20 years) is twice higher now (-0.6 + -0.7 = -1.3***). The slum share is 6 percentage points higher in countries where the urban population doubles every 20 years rather than every 30 years, and 13 percentage points higher in countries where the urban population doubles every 10 years rather than every 20 years. 18 The two components of urban growth – urban natural increase and residual migration – are then correlated with slum expansion (14.44*** vs. 4.58*, column (8)). The coefficient is higher, and more precisely estimated, for the former than for the latter. When standardizing the variables, we find that a 1 standard deviation increase in urban natural increase (residual migration) is associated with a 0.30 (0.20) standard deviation increase in the slum share. The standardized effect is also lower for migration. One interpretation could be that the type of urban growth matters for slum expansion. Natural increase raises the number of children and the dependency rate, which lowers income per capita. Migration increases the number of adults and reduces the dependency rate, and migrants may be highly motivated, which increases income per capita. Higher incomes allow households and governments to invest more in the quality of the housing stock.14 6.2 Alternative Measures of Urban Congestion We now focus on alternative measures of urban congestion, for the most recent period. This type of urban data does not also exist for earlier decades, and we have to rely on cross-sectional regressions. We use the full specification, as in column (5) of Table 7. We control for income in 1960 and 2010, and we include the other controls and the region fixed effects. The results are displayed in Table 8. For the sake of space, we do not report the coefficient of the change in the urbanization rate. The effects of a 1 one standard deviation increase in each variable of interest on one standard deviation in the dependent variable are reported in brackets. Other housing measures: A slum household is defined as a group of individuals living under the same roof lacking one or more of the following conditions (UN- Habitat, 2003): (i) sufficient-living area, (ii) structural quality, (iii) access to improved water source, and (iv) access to improved sanitation facilities. We study the various subcomponents of the slum variable. Data is available for a lower number of countries for some subcomponents, which may reduce the significance of the effects. First, we obtain a positive correlation between urban natural increase and the share of urban inhabitants who lack sufficient-living area, i.e. who live in dwelling units with more than 3 persons per room (8.6*, column (1)). The effect is smaller and not significant for migration. Second, there is a negative (but not significant) correlation between urban natural increase and the share of urban inhabitants who live in a residence with a finished floor, a measure of structural quality (-6.5, column (2)). Third, there is a negative correlation between urban natural increase and the share of urban inhabitants who have access to an improved water source (-3.5**, column (3)). Migration also has a positive effect (-2.0*). Fourth, the effects are small when the dependent variable is the share of urban residents with improved access to sanitation facilities (column (4)). Sanitation facilities are more important than other dimensions of housing. A household is considered to have access to improved sanitation if an excreta disposal system is available to the household. Given a constrained budget, households and local governments prioritize this dimension

14Another interpretation could be that urban newborns live in slums located in the cities, while migrants reside in slums in the periphery. If peripheral slums are not always classified as urban, this reduces the association between slums and migration. However, this is only an issue if there are separate slums for newborns and migrants, and if migrants decide to stop exactly at the periphery of these cities, which may not be credible. Additionally, we examine the correlation between slums today and the demographic rates in 2000, which proxy for rates in 1960-2010. If there may have been distinct slums when cities were still small in 1960, current agglomerations will likely have incorporated the periphery-slums now (2010), minimizing these concerns. 19 over other dimensions, which could explain the non-effect. The lack of sufficient- living area and an easy access to improved drinking water may be less essential. Fast urban growth would then be a constraint, as there are too many non-essential dimensions in which agents must and can act.15 Educational infrastructure: As the population of some cities grew very fast, the number of health and educational facilities had to increase rapidly to match the demand for human capital. However, the health and education sectors are often highly regulated in the cities. Governments may have been unable to keep up with the population growth. They needed to invest in new facilities and train and hire new specialized workers (e.g., physicians and teachers). Rather unfortunately, cross- country data on urban health infrastructure per capita does not exist. Then, since we do not have cross-country data on the overcrowding of urban schools, we use as a dependent variable the urban share of 6-15 year-old children that attended school in the last year. We use as our main sources of data IPUMS census microdata and the Demographic and Health Surveys that are available for many countries. One issue with this measure is that it captures both the supply and demand for educational infrastructure per capita. As we control for income in the regressions, it may capture the factors driving the demand for education, but we cannot be sure. Urban natural increase is strongly associated with lower attendance rates (-11.8***, column (5)). The effect is lower and not significant for migration. This is logical if natural increase disproportionately increases the population share of children. Transport infrastructure: Unfortunately, we do not have data on road congestion in cities of developing countries today. This type of data is not collected by international organizations, and population censuses and household surveys do not ask questions about how much time people spend commuting on average. We know that traffic jams have become a major issue in these cities though (Kutzbach, 2009). For example, UN-Habitat (2008) describes how the outward spreading of African cities, the lack of efficient public transport and an increase in car ownership rates all contribute to rising road congestion. Zenou (2011) explains that improving the transport infrastructure in the cities can increase urban employment. We use particulate matter (PM) concentrations in residential areas of cities with more than 100,000 residents in 2000 as a proxy for car pollution and road congestion (World Bank, 2013). Urban natural increase is indeed positively associated with car pollution (17.18*, column (6)). Urban natural increase is not the only driver of pollution. However, it has contributed to it; a 1 standard deviation increase in urban natural increase is associated with a 0.27 standard deviation increase in car pollution. Mi- gration has no effect, possibly because cities that attract migrants are wealthier, and their local governments are able to invest in transport infrastructure. Labor market outcomes: Urban natural increase also results in urban labor supply shocks. If urban demand does not rise as fast as urban labor supply, the newcomers will be unemployed, or employed by the urban refugee sectors - low productivity sectors that mostly employ unskilled workers such as “personal and other services”.

15It is interesting to note that urban congestion does not necessarily increase urban mortality in developing countries today (see Figure 6). Sewage systems were often inadequate in the cities of Industrial Europe. They were a major source of water-borne diseases and urban mortality (Cutler & Miller, 2004; Voigtländer & Voth, 2013a). Sewage systems may be of better quality in today’s developing world, thanks to advances in public health in the last century. The fact that fast urban growth does not lead to urban congestion in sanitation in our sample is in line with this hypothesis.

20 We do not have consistent data on urban unemployment or informal employment as countries often use different definitions, which lead to large variations in urban unemployment and informality rates. However, as described in the Online Data Appendix, we use IPUMS census microdata, and labor force survey and household survey data to recreate the sectoral composition of urban areas for as many countries as possible around 2000. For each country, we know the urban employment shares of 11 sectors.16 In column (7), we regress the urban employment share of “personal and other services” on the urban rate of natural increase. It is for example the least productive non-agricultural sector in the sample of 40 countries of McMillan & Rodrik (2011). Its employment share is a good proxy for the absorptive capacity of labor markets in developing countries. Column (7) shows that urban natural increase is associated with a higher urban employment share of personal services (4.00**). A 1 standard deviation increase in the rate of urban natural increase is then associated with a 0.49 standard deviation increase in the employment share of this refugee sector. The migration effect is high, but not significant. Overall, it is interesting to note that migration is significantly less associated with urban congestion than urban natural increase ceteris paribus. There are probably various reasons for that, although our analysis can only be speculative without better data. First, many rural workers migrate to the cities because productivity and income are rising there. The strong correlation between income and urbanization in cross-country data suggests that urban income growth must be a strong driver of migration (even if rural poverty may also contribute to migration). Second, while migration lowers the dependency ratio, urban natural increase increases it. This lowers incomes in the short run (the time for the urban newborns to enter the labor market). Third, rising incomes imply that urban residents and governments have the resources to minimize these urban congestion effects. These channels may explain why urban congestion was less of a problem in Industrial Europe. Boston, London, Manchester and New York were also growing fast in the 19th century, and these cities were also affected by slum proliferation. However, economic growth was high, as a result of technological progress that led to industrialization. It is because urban incomes were rising that migrants kept moving to these unhealthy urban environments. Lastly, congestion effects were not large enough to offset the gains from agglomeration. Technological progress may be a less important factor in many cities of today’s developing world, as many countries are urbanizing without industrializing (Barrios, Bertinelli & Strobl, 2006; Yuki, 2007; Poelhekke, 2010; Gollin, Jedwab & Vollrath, 2013). These countries must cope with the rapid growth of their cities, without capturing the full benefits of agglomeration. 6.3 Policy Implications The urban developing world grew at 3.8% per year between 1960 and 2010. More- over, growth rates were greater than 5% in many developing cities. If cities of today’s developing world grew too fast due to high urban rates of natural increase, and urban congestion reduced urban welfare, what can be done about it? There are two possibilities: a reduction in urban fertility or improved urban planning.

16We use data for the closest year to the year 2000, in the 1990-2010 interval. Similarly to Gollin, Jedwab & Vollrath (2013), the 11 sectors are: “agriculture”, “mining”, “public utilities”, “manufacturing”, “construction”, “wholesale and retail trade, hotels and restaurants”, “transportation, storage and communications”, “ﬁnance, insurance, real estate and business services”, “government services”, “education and health” and “personal and other services”.

21 First, any urban population growth slowdown could contribute to increasing the urban capital-labor ratio, and prevent congestion effects from kicking in. This could be achieved through a reduction in urban fertility. It is still very high in many developing regions. For example, Africa’s urban birth rate was 36.2 per 1,000 in the 2000s. This is still higher than the birth rates in Europe during the 19th century (around 30), Asia in 1960 (35), and other developing countries today (10-20). Given an urban death rate of 11.3, reducing the urban birth rate from 36.2 to 20 would lead to a natural increase rate of 8.7 (instead of 24.9 now). With a migration rate of 1.7%, there will be an urban growth rate of 2.6%, similar to industrializing Europe and present-day Asia. Our analysis stresses the role of urban family planning policies, as rapid demographic growth also happens in the cities. The urbanization of the developing world’s population is mechanically driving the “urbanization of global poverty” (Ravallion, 2002; Ravallion, Chen & Sangraula, 2007). The fact that the developing world is urbanizing also implies that rapid demographic growth is becoming increasingly an urban problem. Second, better urban planning could permit an internalization of negative urban externalities. The objective for local and national governments would be to minimize urban congestion, given their minimal fiscal resources. There are several possible approaches. First, the remodeling of Paris by Baron Haussmann in the 1850s is a perfect example of the authoritarian approach. He cleared the narrow medieval streets of the capital in favor of broad boulevards. This transformation increased the standard of living of the Parisians in the later period. Though this approach was undoubtedly beneficial in the long-run, it is highly controversial as a policy model, due to its high societal costs. China may nonetheless be moving in this direction. Second, many cities were planned as a result of (unplanned) creative destruction. For example, many American cities were rebuilt in a better way after a Great Fire (e.g. New York in 1776, Chicago 1871, Boston 1872 and San Francisco 1906). City fires in developing countries today are much less destructive, for various reasons. Houses are built with cement and shacks are built with metal sheets, rather than wood. Fire departments are also more efficient. Third, local urban renewal projects are examples of a more decentralized approach, whether they are implemented by local governments or private promoters. These urban renewal projects may have net positive effects when well-implemented (Kaufmann & Quigley, 1987; Collins & Shester, 2013). However, in developing countries, the absence of strong private markets (and rent-seeking) may decrease the economic returns to such programs. Thus, without any improvement in urban (and not just national) institutions, urban congestion will remain a major issue. Lastly, congestion effects were probably more important in large agglomerations. This could explain why migration from large agglomerations to small and medium-sized cities has been observed in Africa (Potts, 2009). One policy could be to remove the constraints on the growth of the non-primate cities that are often prevalent in developing countries (Christiaensen, Weerdt & Todo, 2013; Christiaensen & Todo, 2013). More generally, it could be worthwhile to invest in the cities of today’s developing world. While urban-biased policies in the past have imposed an unfair burden over the rural residents of these countries, many of their cities will keep growing at a fast pace in the future. While investing in these cities could further fuel migration, not investing in them could make things even worse, especially for the next cohorts of urban residents that are born every year. Alternatively, one may invest in the rural areas of these countries to slow down excessive migration and relieve the already overcrowded cities.

22 7. CONCLUSION

This paper documents several new facts regarding the processes of urbanization, internal migration, natural increase, and economic development. Using an exten- sive new historical dataset on urbanization and the urban demographic transition, we show that: (i) urban growth has been faster in the developing world of the 20th century than in the developing world of the 19th century; (ii) this fast urban growth was mostly driven by natural increase, and not by migration as in Europe. Many cities of today’s developing world can be classified as “mushroom cities” vs. the “killer cities” of Industrial Europe; fertility remains high, while mortality has fallen to low levels, which has led to high urban rates of natural increase; (iii) urban natural increase has accelerated urbanization in today’s developing world, and this conditional on income, thus producing urbanization without growth; and (iv) fast urban growth, and urban natural increase in particular, are associated with more congested cities, which has strong implications for economic development. Our results make the following contributions. First, our paper adds to the literature on rural push and urban pull factors by offering an additional mechanism for urban growth and urbanization based on a urban push. Urbanization does not come from migration only, as internal growth also matters. We also hope that the consistent data set that we have created will help researchers study the urbanization process across space and time. Second, our paper contributes to the literature on the relationship between urbanization and economic development. Our results suggest that economic development is not the only driver of urban growth and urbanization. Besides, the resulting urbanization per se may not necessarily be conducive to further economic growth and increased welfare, as congestion effects may limit the benefits from agglomeration. The “origin” of urbanization may thus impact its relationship with development. Third, our findings advance the literature on the effects of population growth on economic growth. We study an increase in population and congestion effects from the perspective of cities, not countries. This paper leaves several open questions. The first is why many countries and cities did not complete their fertility transition earlier. Urban fertility remains high in various parts of the world, and their cities will keep growing at a fast pace in the future. A second question that we leave unanswered is why some countries were better able to reap the benefits from urban agglomeration and solve urban congestion. While we believe that answering these questions is essential for understanding and potentially “improving” on the urbanization process of developing countries, they are beyond the scope of this paper, and we leave them for future research.

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Zenou, Yves. 2011. “Search, Migration, and Urban Land Use: The Case of Transportation Policies.” Journal of Development Economics, 96(2): 174–187. 26 TABLE 1: URBAN NATURAL INCREASE AND URBAN GROWTH, MULTIVARIATE PANEL ANALYSIS (1960-2010) Dependent Variable: Annual Urban Growth Rate (%, Decade t) (1) (2) (3) (4) (5) (6) Urban Natural Increase Rate 0.95*** 0.84*** 0.91*** 0.97*** 1.01*** (Per 100 People, Decade t) (0.28) (0.28) (0.27) (0.30) (0.32) Urban Birth Rate 0.98*** (Per 100 People, Decade t) (0.32) Urban Death Rate -1.12** (Per 100 People, Decade t) (0.49) Country FE & Decade FE (33; 5) Y Y Y Y Y Y Controls for Income & Urb. Rate N Y Y Y Y Y Area FE (4) x Time Trend N N Y Y Y Y Time-Varying Controls N N N Y Y Y Region FE (10) x Time Trend N N N N Y Y Observations (33 x 5) 165 165 165 165 165 165 Adj. R-squared 0.70 0.74 0.75 0.76 0.80 0.79 Notes: Robust standard errors clustered at the country level are reported in parentheses; * p<0.10, ** p<0.05, *** p<0.01. The sample consists of 33 countries that were still developing countries in 1960, for the following decades: [1960s, 1970s, 1980s, 1990s, 2000s]. All regressions include country and decade fixed effects. In column (2), we also control for log GDP per capita (PPP, cst 2005$) and the urbanization rate (%) at the start of the decade, and log GDP per capita at the end of the decade. In column (3), we also include area fixed effects (Africa, Asia, LAC, MENA) interacted with a time trend. In column (4), we also include the following controls: (i) Rural push factors: average cereal yields (hg per ha), rural density (1000s of rural pop. per sq km of arable area), the number of droughts (per sq km), and a dummy equal to one if the country has experienced a conflict, in decade t; (ii) Urban pull factors: the share of manufacturing and services in GDP (%) in 2010 interacted with decade fixed effects, the share of natural resource exports in GDP (%), a dummy equal to one if the country was autocratic, and the primacy rate (%), in decade t; and (iii) Population (1000s) in decade t. In columns (5)-(6), we also include region fixed effects (Western Africa, etc.) interacted with a time trend. See the Online Data Appendix for data sources and construction of variables.

TABLE 2: URBAN NATURAL INCREASE AND URBAN GROWTH, MULTIVARIATE PANEL ANALYSIS (1960-2010), ROBUSTNESS

Dependent Variable: Annual Urban Growth Rate (%, Decade t) Unic,t Migrc,t (1) (2) (3) (4) (5) (6) (7) Urban Natural Increase Rate 1.01*** 1.05*** 1.02*** 1.02*** 1.09*** (Per 100 People, Decade t) (0.32) (0.37) (0.37) (0.36) (0.37) Residual Migration Rate 0.06 (Per 100 People, Decade t-1) (0.08) Urban Natural Increase Rate 0.06 (Per 100 People, Decade t-1) (0.31) Annual Urban Growth Rate 0.06 0.06 0.06 (Per 100 People, Decade t-1) (0.07) (0.08) (0.06) Annual Urban Growth Rate 0.06 0.17 (Per 100 People, Decade t-1) (0.31) (0.10) Rural Natural Increase Rate -0.06 (Per 100 People, Decade t) (0.27) Rural Natural Increase Rate -0.00 (Per 100 People, Decade t-1) (0.24) Specification Col. (5) Table 1 Y Y Y Y Y Y Y Observations (33 x 5; 4; 3 ) 165 132 132 132 132 132 132 Adj. R-squared{ } 0.78 0.81 0.80 0.81 0.80 0.67 0.84 Notes: Robust standard errors clustered at the country level are reported in parentheses; * p<0.10, ** p<0.05, *** p<0.01. The sample consists of 33 countries that were still developing countries in 1960, for the following decades: [1960s, 1970s, 1980s, 1990s, 2000s]. In columns (1)-(5), the dependent variable is the annual urban growth rate (%) in decade t. In columns (6) and (7), the dependent variables are the respective contributions of urban natural increase and “residual migration” to urban growth (%) in decade t. The baseline regression (col. (1)) is the same as in column (5) of Table 1. When we add variables estimated in decade t-1, we lose one round of data. In column (2), we test that the main effect is the same without this round of data. The specification is the same as in column (5) of Table 1. All regressions include country and decade fixed effects, controls for income and urbanization, time-varying controls, and region fixed effects interacted with a time trend. See the Online Data Appendix for data sources and construction of variables.

27 TABLE 3: URBAN NATURAL INCREASE AND URBAN GROWTH, MULTIVARIATE CROSS-SECTIONAL ANALYSIS (1960-2010) Dependent Variable: Annual Urban Growth Rate Largest (1960-2010, %) City (1) (2) (3) (4) (5) (6) Urban Natural Increase Rate 1.31*** 0.92*** 0.76*** 0.78*** 0.76*** (Per 100 People, 2000) (0.19) (0.25) (0.25) (0.25) (0.27) Largest City’s Birth Rate 1.19*** (Per 100 People, 2000) (0.37) Controls for Inc. & Urb. Rate N Y Y Y Y Y Area FE (4) N N Y Y Y Y Time-Invariant Controls N N N Y Y Y Region FE (13) N N N N Y Y Observations 97 97 97 97 97 94 R-squared 0.29 0.46 0.54 0.66 0.66 0.64 Notes: Robust standard errors are reported in parentheses; * p<0.10, ** p<0.05, *** p<0.01. The sample consists of 97 countries that were still developing countries in 1960. In columns (1)-(5), the dependent variable is the annual urban growth rate (%) between 1960 and 2010. In column (6), it is the growth rate of the largest city (%) between 1960 and 2010. The urban natural increase rate in 2000 is used as a proxy for urban natural increase in 1960-2010. In column (2), we control for income in 1960 and 2010, and urbanization in 2010. In column (3), we also include area fixed effects. In column (4), we also add the following controls: (i) Urban definition: four dummies for each type of definition (administrative, threshold, threshold and administrative, and threshold plus condition) and the value of the population threshold to define a locality as urban when this definition is used; (ii) Rural push factors: cereal yields in 2010 (hg per ha), rural density (1000s of rural pop. per sq km of arable area) in 2010, the number of droughts (per sq km) since 1960, and a dummy equal to one if the country has experienced a conflict since 1960; (iii) Urban pull factors: the share of manufacturing and services in GDP (%) in 2010, the share of natural resource exports in 1960-2010 (%), a dummy equal to one if the country was mostly autocratic since 1960 and the primacy rate in 2010 (%); and (iv) Other controls: area (sq km), population (1000s) in 2010, and two dummies equal to one if the country is landlocked or a small island (< 50,000 sq km). Columns (5)-(6) also include region fixed effects (Western Africa, etc.). See the Online Data Appendix for data sources and construction of variables.

TABLE 4: URBAN NATURAL INCREASE AND URBANIZATION, MULTIVARIATE PANEL ANALYSIS (1960-2010) Dependent Variable: Change in the Urbanization Rate (%, Decade t) (1) (2) (3) (4) (5) (6) Annual Urban Growth Rate 2.02*** 1.98*** 2.00*** 2.01*** 1.91*** (Per 100 People, Decade t) (0.32) (0.30) (0.30) (0.29) (0.30) Urban Natural Increase Rate 1.21** (Per 100 People, Decade t) (0.60) Residual Migration Rate 2.02*** (Per 100 People, Decade t) (0.32) Country FE & Decade FE (33; 5) Y Y Y Y Y Y Controls for Income N Y Y Y Y Y Area FE (4) x Time Trend N N Y Y Y Y Time-Varying Controls N N N Y Y Y Region FE (10) x Time Trend N N N N Y Y Observations (33 x 5) 165 165 165 165 165 165 Adj. R-squared 0.65 0.66 0.66 0.66 0.68 0.69 Notes: Robust standard errors clustered at the country level are reported in parentheses; * p<0.10, ** p<0.05, *** p<0.01. The sample consists of 33 countries that were still developing countries in 1960, for the following decades: [1960s, 1970s, 1980s, 1990s, 2000s]. All regressions include country and decade fixed effects. In column (2), we also control for log GDP per capita (PPP, cst 2005$) at the start and the end of the decade. In column (3), we also include area FE (Africa, Asia, LAC, MENA) interacted with a time trend. In column (4), we also include the same controls as in Table 1 (see the footnote below the table). In column (5)-(6), we also include region FE (Western Africa, etc.) interacted with a time trend. See the Online Data Appendix for data sources and construction of variables. 28 TABLE 5: URBAN NATURAL INCREASE AND URBANIZATION, MULTIVARIATE PANEL ANALYSIS (1960-2010), ROBUSTNESS Dependent Variable: Change in the Urbanization Rate (%, Decade t) (1) (2) (3) (4) (5) (6) Urban Natural Increase Rate 1.21** 1.58** 1.53** 1.41** 1.24** 1.94** (Per 100 People, Decade t) (0.60) (0.62) (0.56) (0.62) (0.55) (0.77) Residual Migration Rate 2.02*** 2.22*** 2.20*** 2.22*** 2.29*** 2.24*** (Per 100 People, Decade t) (0.32) (0.48) (0.46) (0.47) (0.44) (0.49) Urban Natural Increase Rate -0.79 (Per 100 People, Decade t-1) (0.70) Residual Migration Rate 0.43 (Per 100 People, Decade t-1) (0.26) Annual Urban Growth Rate 0.31 (Per 100 People, Decade t-1) (0.28) Change in the Urbanization Rate 0.24** (Per 100 People, Decade t-1) (0.12) Rural Natural Increase Rate -0.65 (Per 100 People, Decade t) (0.60) Rural Natural Increase Rate 0.34 (Per 100 People, Decade t-1) (0.74) Specification Column (5) Table 4 Y Y Y Y Y Y Observations (33 x 5) 165 132 132 132 132 132 Adj. R-squared 0.69 0.70 0.71 0.70 0.72 0.69 Notes: Robust standard errors clustered at the country level are reported in parentheses; * p<0.10, ** p<0.05, *** p<0.01. The sample consists of 33 countries that were still developing countries in 1960, for the following decades: [1960s, 1970s, 1980s, 1990s, 2000s]. The baseline regression (col. (1)) is the same as in column (6) of Table 4. When we add variables estimated in decade t-1, we lose one round of data. In column (2), we test that the main effect is the same without this round of data. The specification is the same as in column (6) of Table 4. All regressions include country and decade fixed effects, controls for income, time-varying controls, and region fixed effects interacted with a time trend. See the Online Data Appendix for data sources and construction of variables.

TABLE 6: URBAN NATURAL INCREASE AND URBANIZATION, MULTIVARIATE CROSS-SECTIONAL ANALYSIS (1960-2010) Dependent Variable: Change in the Urbanization Rate (%, 1960-2010) (1) (2) (3) (4) (5) (6) Annual Urban Growth Rate 2.29** 3.16*** 3.57*** 4.93*** 5.57*** (Per 100 People, 1960-2010) (1.02) (1.06) (1.16) (1.15) (1.04) Urban Natural Increase Rate 3.64* (Per 100 People, 2000) (2.02) Residual Migration Rate 5.97*** (Per 100 People, 2000) (1.09) Controls for Income N Y Y Y Y Y Area FE (4) N N Y Y Y Y Time-Invariant Controls N N N Y Y Y Region FE (13) N N N N Y Y Observations 97 97 97 97 97 97 Adj. R-squared 0.07 0.16 0.20 0.33 0.51 0.50 Notes: Robust standard errors are reported in parentheses; * p<0.10, ** p<0.05, *** p<0.01. The sample consists of 97 countries that were still developing countries in 1960. The rate of urban natural increase in 2000 is used as a proxy for urban natural increase in 1960-2010. In column (2), we control for log GDP per capita (PPP,cst 2005$) in 1960 and 2010. In column (3), we also include area ﬁxed effects. In column (4), we also add the same country-level controls as in Table 3 (see the footnote below the table). Columns (5)-(6) also include region ﬁxed effects (Western Africa, etc.). See the Online Data Appendix for data sources and construction of variables.

29 TABLE 7: URBAN NATURAL INCREASE, URBAN GROWTH AND SLUMS (2000) MULTIVARIATE CROSS-SECTIONAL ANALYSIS (1960-2010) Dependent Variable: Urban Population Living in Slums (%, 2005) (1) (2) (3) (4) (5) (6) (7) (8) Annual Urban Growth Rate 8.93***4.39***3.83** 6.52***6.43** (%, 1960-2010) (3.12) (1.26) (1.56) (2.27) (2.79) Change in Urbanization Rate -0.18 0.35** 0.35** 0.17 -0.00 0.05 0.06 0.10 (%, 1960-2010) (0.29) (0.17) (0.17) (0.21) (0.28) (0.26) (0.22) (0.20) Number of Years in which the Urban Population Doubles -0.5*** -0.6*** (Average, 1960-2010) (0.2) (0.2) Number of Years in which the Urban Population Doubles -0.7** (Average 1960-2010) * Dummy “Number of Years Below Mean” (0.3) Urban Natural Increase 14.44*** (%, 2000) (5.01) Residual Migration 4.58* (%, 2000) (2.61) Controls for Income N Y Y Y Y Y Y Y Area FE (5) N N Y Y Y Y Y Y Time-Invariant Controls N N Y Y Y Y Y Y Region FE (13) N N N N Y Y Y Y Observations 95 95 95 95 95 95 95 95 Adj. R-squared 0.17 0.61 0.62 0.67 0.68 0.70 0.69 0.70 Notes: Robust standard errors are reported in parentheses; * p<0.10, ** p<0.05, *** p<0.01. The sample consists of 95 countries that were still developing countries in 1960. The rate of urban natural increase in 2000 is used as a proxy for urban natural increase in 1960-2010. The residual migration rate is estimated as the difference between the annual urban growth rate in 1960-2010 and the rate of urban natural increase in 2000. The number of years in which the urban population doubles on average in 1960-2010 is estimated using the annual urban growth rate. We create a dummy variable equal to one if this number is below the mean in the sample (19.4). In column (2), we control for log GDP per capita (PPP,cst 2005$) in 1960 and 2010. In column (3), we also include area ﬁxed effects. In column (4), we also add the same country-level controls as in Table 3. Columns (5)-(8) also include region ﬁxed effects. See the Online Data Appendix for data sources and construction of variables.

TABLE 8: URBAN NATURAL INCREASE AND MEASURES OF URBAN CONGESTION MULTIVARIATE CROSS-SECTIONAL ANALYSIS (2000) Dependent Variable: Lack Finished Access Access School PM10 Empl Sufficient Floor Improved Improved Attend. (mg Share Living Water Sanitation (6-15 per Perso. Area Source Facilities y.o.) cubic Serv. (%) (%) (%) (%) (%) m) (%) (1) (2) (3) (4) (5) (6) (7) Urban Natural Increase 8.6* -6.5 -3.5** -1.2 11.8*** 17.8* 4.0** (%, 2000) (4.6) (5.6) (1.6) (2.7)− (3.9) (10.0) (2.0) [0.46][0.20][0.21][0.03][0.49][0.27][0.49] Residual Migration 2.9 -1.3 -2.0* -2.0 -3.4 -0.0 1.2 (%, 2000) (2.8) (3.6) (1.1) (1.9) (3.0) (5.7) (1.0) [0.24][0.07][0.25][0.11][0.22][0.00][0.31] Specification Col. (8) Table 8 Y Y Y Y Y Y Y Sample Mean 18.8 77.9 89.5 65.1 80.2 71.3 5.5 Observations 57 66 93 93 64 93 72 Notes: Robust standard errors are reported in parentheses; * p<0.10, ** p<0.05, *** p<0.01. The effects of 1 standard deviation increase in the variable of interest on 1 standard deviation in the dependent variable are reported in brackets. We regress various measures of urban congestion in 2000 on the rates of urban natural increase in 2000, which we use as a proxy for urban natural increase in 1960-2010. The residual migration rate is estimated as the difference between the annual urban growth rate in 1960-2010 and the rate of urban natural increase in 2000. In column (1), the dependent variable is the share of urban inhabitants who lack sufficient-living area (%), i.e. who live in dwelling units with more than 3 persons per room. In column (2), it is the share of urban inhabitants who live in a residence with a finished floor (%). In columns (3) and (4), it is the share of urban inhabitants who have access to an improved water source and improved sanitation facilities respectively (%). In column (5), it is the urban share of 6-15 year-old children that attend school (%). In column (6), it is a measure of particulate matter (PM) concentrations in residential areas of cities with more than 100,000 residents. In column (7), it is the urban employment share of personal and other services (%), an informal refugee sector. The specification is the same as in column (8) of Table 7. All regressions include controls for income, time-invariant controls, and region fixed effects. See the Online Data Appendix for data sources and construction of variables. Figure 1: Urbanization Rates (%) for Europe (1700-1950) and The Developing World (1900-2010)

Notes: This ﬁgure plots the urbanization rate (%) for Europe (1700-1950) and four developing regions (1900-2010): Africa, Asia, Latin America and the Caribbean (LAC) and Middle-East and North Africa (MENA). Europe includes 18 Western European countries and the United States, as one example of a Neo-European country. We then use data for 116 African, Asian and non-North American countries that were still developing countries in 1960. Averages are estimated using the population weights for the same year. See the Online Data Appendix for data sources.

Figure 2: Annual Urban Growth Rates (%) for Europe (1700-1950) and The Developing World (1900-2010)

Notes: This ﬁgure plots the annual urban growth rate (%) for Europe (1700-1950) and four developing regions (1900-2010): Africa, Asia, Latin America and the Caribbean (LAC) and Middle-East and North Africa (MENA). Europe includes 18 Western European countries and the United States, as one example of a Neo-European country. We then use data for 116 African, Asian and non-North American countries that were still developing countries in 1960. Averages are estimated using the population weights for the same year. See the Online Data Appendix for data sources. 31 Figure 3: Natural Increase and Change in Urbanization, Simulation

Notes: This ﬁgure shows the relationship between the change in the urbanization rate in year t (∆Ut , in percentage points) and the urban crude rate of natural increase in year t (Unit , per 100 people), given the initial urbanization rate at the start of year t (Ut ). We assume that the rural crude rate of natural increase (Rnit ) = 2.5% and the residual migration rate (Migt ) = 1.5% per year. We use Uni = 0.5% as a benchmark. This allows us to compare the “relative” effects of urban natural increase on the change in the urbanization rate for various values of Uni = 1; 1.5; 2; 2.5; 3 . { } Figure 4: Natural Increase and Urban Growth in England (1700-1950)

Notes: This ﬁgure plots the crude birth rate, the crude death rate and the crude rate of natural increase (per 1,000 people) for rural England and urban England (1700-1950). This ﬁgure also plots the decomposition of annual urban growth (%) into annual natural increase (%) and annual “residual migration” (%). See the Online Data Appendix for data sources.

32 Figure 5: Crude Birth Rates for The Developing World (1960-2010)

Notes: This ﬁgure plots the crude birth rate (per 1,000 people) for the rural and urban areas of four developing regions (1960-2010): Africa, Asia, Latin America and the Caribbean (LAC) and Middle- East and North Africa (MENA). We use demographic data that we have collected for 33 countries that were still developing countries in 1960. See the Online Data Appendix for data sources.

Figure 6: Crude Death Rates for The Developing World (1960-2010)

Notes: This ﬁgure plots the crude death rate (per 1,000 people) for the rural and urban areas of four developing regions (1960-2010): Africa, Asia, Latin America and the Caribbean (LAC) and Middle- East and North Africa (MENA). We use demographic data that we have collected for 33 countries that were still developing countries in 1960. See the Online Data Appendix for data sources.

33 Figure 7: Crude Rates of Natural Increase for The Developing World (1960-2010)

Notes: This ﬁgure plots the crude rate of natural increase (per 1,000 people) for the rural and urban areas of the four developing areas (1960-2010). We use historical demographic data for 33 countries that were still developing countries in 1960. See the Online Data Appendix for data sources. Figure 8: Natural Increase and Urban Growth for The Two Developing Worlds (1700-1950 and 1960-2010)

Notes: This ﬁgure plots the decomposition of annual urban growth (%) into annual natural increase (%) and annual “residual migration” (%) for the four developing areas, the developing world as a whole in 1960-2010 and England in 1700-1950. We use historical demographic data for 33 countries that were still developing countries in 1960. See the Online Data Appendix for data sources. 34 FOR ONLINE PUBLICATION: DATA SOURCES

This appendix describes in details the data we use in our analysis.

Spatial Units for Industrial Europe and Today’s Developing World: We use three different samples in our analysis. First, we obtain historical urban data for 19 European and North American countries from 1700-1950, and 116 Africa, Asian or non- North American countries that were still developing countries in 1960, from 1960-2010. We exclude from our analysis the European countries for which we could not find historically consistent urban data, as well as the former CIS countries. We use these countries to describe urban patterns in “Industrial Europe” (which also includes a Neo-European country, the United States) and four developing areas: Sub-Saharan Africa (which we call “Africa”), Asia, Latin America and the Caribbean (LAC), and Middle-East and North Africa (MENA). Second, our main sample consists of 40 of these countries from 1700 to 2010. These are the countries for which we found historical demographic data. Historical consistent data was not found for other countries. The list of countries and years (or periods) for which we have data is reported in Appendix Tables 1, 2 and 3. These countries belong to the five developing areas: Industrial Europe (N = 7, about every 40 years in 1700-2010), Africa (N = 10, every ten years in 1960-2010), Asia (N = 11, ditto), LAC (N = 8, ditto) and MENA (N = 4, ditto). Third, we also collect cross-sectional data for 97 out of the 116 countries for which we were to able to find demographic data, for the most recent period. The countries of Africa, Asia, the LAC and MENA regions are then classified into 13 regions: Central Africa, Eastern Africa and Western Africa for Africa; East Asia, Pacific Islands, South Asia and South-East Asia for Asia; Caribbean, Central America and South America for the LAC region; and Middle-East and North Africa for the MENA region. Urban Growth and Urbanization in Industrial Europe: The annual urban growth rate is the average growth rate of the urban population between two years (%). The urbanization rate is defined as the share of the urban population in total population (%). We use Bairoch (1988) and Malanima and Volckart (2007) to reconstruct consistent urban growth and urbanization rates for 18 Western European countries and the United States for the following periods: 1700-1750, 1750-1800, 1800-1850, 1850-1910 and 1910-1950. Averages are estimated using the population weights for the same period. We then consider 7 countries in our main analysis (listed in Appendix Table 1). We also use Bairoch (1988), Batou and Chevre (1988) and Wikipedia (2013) to obtain the annual growth rate of the largest city for the 19 countries for each period. Urban Growth and Urbanization in Today’s Developing World: We reference Bairoch (1988), Sluglett (2008) and WUP (2011) to reconstruct the urban growth and urbanization rates for Africa, Asia and the LAC and MENA regions for the following periods: 1900-1920, 1920-1930, 1930-1950, 1950-1960, 1960-1970, 1970-1980, 1980-1990, 1990-2000 and 2000-2010. For the last six decades, we use data for 116 African, Asian and non-North American countries from 1950-2010. Averages are estimated using the population weights for the same period. We consider 33 countries in the panel analysis from 1960-2010 (listed in Appendix Table 2). We then consider 97 out of the 116 countries for the cross-sectional analysis from 1960-2010. We also use WUP (2011) and WB (2013) to estimate the growth rate of the largest city for each country, for the following periods: 1960-1970, 1970-1980, 1980-1990, 1990-2000 and 2000-2010. Urban Demographic Transition in Industrial Europe: For each of the 7 countries of Industrial Europe, we use various historical sources to obtain the national, urban and rural crude rates of birth, crude rates of death and crude rates of natural increase (per 1,000 people) for several decades during the 1800-1910 period (sources listed in Panel A, Appendix Table 3). For England, our main European country of

A. 1 analysis, we have data from 1700 to 1950. For the six other countries, demographic data only exists for shorter periods. Urban Demographic Transition in Today’s Developing World: For each of the 33 countries of today’s developing world, we use reports from the Population and Housing Censuses, CICRED Monographs, Fertility Surveys, and Demographic and Health Surveys (DHS) as well as the Statistical Yearbooks of the United Nations, to obtain the national, urban and rural crude rates of birth, crude rates of death and crude rates of natural increase (per 1,000 people) for each decade during the 1960-2010 period (sources listed in Panel B, Appendix Table 3). We could not find consistent historical data for other countries. Indeed, demographic data does not always exist for countries as far back as the 1960s. For 64 other countries of today’s developing world, we use reports from the Population and Housing Censuses and Demographic and Health Surveys to obtain an estimate of the urban and rural crude rates of birth and death for the closest year to 2000, in the 1990-2010 interval. For the 33 + 64 = 97 countries, we also used the same sources to retrieve the urban fertility rate for the closest year to 2000, in the 1990-2010 interval. For 94 countries of today’s developing world, we also use the sources mentioned above to obtain the birth rate of the largest city for the closest year to 2000, in the 1990-2010 interval. Data on the crude death rate of the largest city does not exist. Measures of Urban Congestion: Data on the share of the urban population living in slums (%) comes from UN-Habitat (2003), UN (2013) and WB (2013). A slum household is usually defined as a group of individuals living under the same roof lacking one or more of the following conditions (UN- Habitat 2003): (i) sufficient-living area, (ii) structural quality, (iii) access to improved water source, and (iv) access to improved sanitation facilities. We have data for 113 countries, but we focus on 95 countries for which we also have data on urban natural increase in 2000. Data is available for a lower number of countries for some subcomponents of the slum variable. UN-Habitat (2003) reports the share of urban residents that lack “sufficient- living area”, i.e. who live in dwelling units with more than 3 persons per room. We use as a measure of “structural quality” the share of urban inhabitants who live in a residence with a finished floor. We reconstruct this variable using the International Public-Use Micro- data Series (IPUMS, 2013) and the stat compiler of the Demographic and Health Surveys (DHS, 2013). Data on the share of urban inhabitants who have access to an improved water source and improved sanitation facilities (%) comes from WB (2013). A household is considered to have access to an improved water source if it has sufficient amount of water for family use, at an affordable price, available to household members without being subject to extreme effort, especially to women and children. A household is considered to have access to improved sanitation, if an excreta disposal system is available to household members. Data on the urban share of 6-15 year-old children that attend school (%) comes from the DHS (2013) and IPUMS (2013). Data on our measure of particulate matter (PM) concentrations in residential areas of cities with more than 100,000 residents comes from WB (2013). Urban Employment: Data on the urban employment structure in selected countries for 2000-2010 was recreated using various sources, as described for each country in Gollin, Jedwab and Vollrath (2013). We use five different sources of data. Our two main data sources are IPUMS (2013), the International Public-Use Microdata Series, and ILO (2013), the International Organization of Labor. We complement these datasets with data from the published reports of Popula- tion and Housing Censuses, Labor Force Surveys and Household Surveys. For each country for which data is available, we estimate the employment shares of all urban areas for the following 11 sectors: “agriculture”, “mining”, “public utilities”, “manufacturing”, “construction”, “wholesale and retail trade, hotels and restaurants”, “transportation, storage and commu-

A. 2 nications”, “finance, insurance, real estate and business services”, “government services”, “education and health” and “personal and other services”. Income and Other Controls: We have GDP per capita every ten years for 1960-2010. The main variable used in our analysis is average log GDP per capita for each decade (constant 2005 international $). We use various sources to reconstruct a range of time-invariant or time-varying controls at the country-level. In the panel regressions, we include the time-varying controls (estimated in the same or previous decade). In the cross-sectional regressions, we also include the time- invariant controls (the time-varying controls are estimated for 1960-2010 instead of for the same or previous decade). First, we consider various rural push factors: (i) FAO (2013) reports the cereal yields (hg per ha) for each country-year observation. We then estimate the average yields for each decade; (ii) Rural density is defined as the ratio of rural population (1000s) to arable area (sq km). The arable area of each country is reported by FAO (2013); (iii) CRED (2013) reports the number of droughts experienced by each country every year. We use two variables: the number of droughts (per sq km) since 1960, and the number of droughts (per sq km) for each decade (e.g., 1960-1969 for the 1960s); and (iv) The Polity IV data series includes a measure of political violence for each country (1964-present). We create an indicator whose value is one if the country experienced an interstate or civil conflict in each decade (Polity IV 2013a). Second, we consider various urban pull factors: (i) The share of manufacturing and services in GDP (%) in 2010 is obtained from WB (2013). The data is missing for many country- year observations before the recent period; (ii) We use the data set of Gollin, Jedwab and Vollrath (2013) to obtain the average share of natural resource exports in GDP (%) for each decade; (iii) We use the Polity IV data series to calculate the average combined polity score for each country for each decade (Polity IV 2013b). We create an indicator whose value is one if the average polity score is lower than -5, the threshold for not being considered autocratic; and (iv) From WB (2013), we know the share of the largest city in the urban population, the primacy rate, for all years in 1960-2010. Third, we use the other following controls: (i) The 97 countries use four different types of urban definition in their most recent censuses: (a) “administrative cities” are administrative centers of territorial units (e.g., provinces, districts, “communes”, etc.), (b) “threshold cities” are localities whose population is greater than a population threshold of X inhabitants (e.g.,5,000 or 2,500), (c) “administrative or threshold cities” are either administrative centers or localities whose population is greater than a population threshold, and (d) “threshold with condition cities” are localities whose population is greater than a population threshold and who have a large share of the labor force is engaged in non-agricultural activities. We create indicator variables for each definition. For each country using a population threshold, we know the threshold and use it as a control in our regression analysis; (ii) WUP (2011) reports total population for each country every year for 1950-2010; (iii) Country area (sq km) is obtained from WB (2013); and (iv) We create two indicators whose value is one if the country is a small island or if the country is landlocked. We consider an island country “small” if its area is smaller than 50,000 sq km.

REFERENCES Bairoch, Paul. 1988. Cities and Economic Development: From the Dawn of History to the Present. Chicago: The University of Chicago Press. Bairoch, Paul, Batou, Jean, and Pierre Chevre. 1988 Population des villes européennes de 800 à 1850 : banque de données et analyse sommaire des résultats. Geneva: Librairie Doz.

A. 3 CRED. 2013. EM-DAT: International Disaster Database Louvain: Centre for Research on the Epidemiology of Disasters (CRED), Université Catholique de Louvain. DHS. 2013. Demographic and Health Surveys. Washington, DC: USAID. FAO. 2013. FAOSTAT. Roma: Food and Agriculture Organization. Gollin, Jedwab and Vollrath (2013). Urbanization with and without Industrialization. Un- published manuscript, Department of International Development, University of Oxford. ILO. 2013. ILOSTAT Database. Roma: International Labor Organization. IPUMS. 2013. Integrated Public-Use Microdata Series, International. Minneapolis, MN: Min- nesota Population Center. Malanima, Paolo, and Oliver Volckart. 2007. Urbanisation 1700-1780. Chapter prepared for the Third RTN/CEPR Summer Symposium in London: An Economic History of Modern Europe. Polity IV. 2013a. Polity IV Project: Political Regime Characteristics and Transitions, 1800- 2011: Polity IV Annual Time-Series 1800-2011. Vienna: Center for Systemic Peace. Polity IV. 2013b. Polity IV Project: Political Regime Characteristics and Transitions, 1800- 2011: Major Episodes of Political Violence, 1946-2011. Vienna: Center for Systemic Peace. Sluglett, Peter. 2008. The Urban Social History of the Middle East: 1750-1950. Syracuse: Syracuse University Press. UN. 2013. Millenium Development Goals Indicators. New York: United Nations. WB. 2013. World Development Indicators. Washington, DC: World Bank. Wikipedia. 2013. City of X, in the United States, Economy of Country X, Landlocked country, Largest Cities of Country X and List of Island Countries. San Francisco, CA: Wikipedia. WUP.2011. World Urbanization Prospects, the 2011 Revision. New York: United Nations.

A. 4 FOR ONLINE PUBLICATION: APPENDIX FIGURES

Appendix Figure 1: Urban Crude Rates of Birth and Urban Total Fertility Rates for 97 Developing Countries (2000-10)

Notes: This ﬁgure plots the relationships between the urban crude birth rate (per 1,000 people) and the urban total fertility rate (the average number of children born to an urban woman over her lifetime) for 97 countries that were still developing countries in 1960 and for which we have data for the period 2000-2010. The linear ﬁt is plotted for the relationship between the urban crude birth rate and the urban total fertility rate. See the Online Data Appendix for data sources.

Appendix Figure 2: Urban Crude Rates of Birth, Death and Natural Increase for 97 Developing Countries (2000-10)

Notes: This ﬁgure plots the relationships between the urban crude rate of natural increase (per 1,000 people), the urban crude birth rate (per 1,000 people) and the urban crude death rate (per 1,000 people) for the 97 developing countries that were still developing countries in 1960 and for which we have data for the period 2000-2010. See the Online Data Appendix for data sources.

A. 5 FOR ONLINE PUBLICATION: APPENDIX TABLES

Appendix Table 1: Decomposition of Annual Urban Growth for 7 European Countries, 1800-1910

Country Period: 1800-1850 1850-1870 1870-1910 1800-1910 England Urban Growth (%) 2.7 1.8 2.2 2.3 Natural Increase (%) 0.0 0.5 1.1 0.5 Residual Migration (%) 2.7 1.3 1.1 1.9 Belgium Urban Growth (%) 1.9 0.3 2.5 1.8 Natural Increase (%) _ 0.4 0.6 0.5 Residual Migration (%) _ -0.1 1.9 1.3 France Urban Growth (%) 1.3 1.0 1.5 1.3 Natural Increase (%) _ 0.2 0.1 0.1 Residual Migration (%) _ 0.7 1.4 1.2 Germany Urban Growth (%) 1.8 3.0 3.0 2.5 Natural Increase (%) 0.1 0.2 1.0 0.6 Residual Migration (%) 1.7 2.8 2.0 1.9 Netherlands Urban Growth (%) 0.9 0.7 2.1 1.3 Natural Increase (%) 0.0 0.5 1.2 0.4 Residual Migration (%) 0.9 0.2 0.9 0.9 Sweden Urban Growth (%) 0.8 2.0 3.2 1.9 Natural Increase (%) -0.5 0.5 1.0 0.3 Residual Migration (%) 1.3 1.5 2.2 1.6 United States Urban Growth (%) 5.2 5.7 3.5 4.6 Natural Increase (%) 0.3 0.4 0.4 0.4 Residual Migration (%) 4.8 5.3 3.1 4.3 Average Urban Growth (%) 2.1 2.1 2.6 2.2 Natural Increase (%) 0.0 0.4 0.7 0.5 Residual Migration (%) 2.1 1.7 1.8 1.7 Notes: This table shows the decomposition of annual urban growth into annual natural increase and annual residual migration (%) for 6 European countries and one Neo-European country, the United States (1800-1910). Averages are not weighted by population. See the Online Data Appendix for data sources.

A. 6 Appendix Table 2: Decomposition of Annual Urban Growth for 33 Developing Countries, 1960-2010

Period: 1960-2010 2000-2010 Subregion Country Urban Natural Residual Urban Natural Residual Growth Incr. Migr. Growth Incr. Migr. ASIA 3.5 1.7 1.8 2.3 1.1 1.2 East Asia (N = 3): 2.9 1.1 1.8 2.0 0.4 1.6 East Asia China 3.7 1.0 2.7 3.8 0.8 3.0 East Asia Japan 1.4 0.7 0.7 1.5 0.0 1.5 East Asia South Korea 3.6 1.5 2.1 0.9 0.5 0.3 South Asia (N = 4): 3.5 1.9 1.6 2.3 1.4 0.9 South Asia Bangladesh 5.8 2.1 3.7 3.1 1.1 2.0 South Asia India 3.2 1.8 1.4 2.6 1.3 1.3 South Asia Pakistan 3.7 2.2 1.5 2.7 1.9 0.8 South Asia Sri Lanka 1.3 1.5 -0.2 0.6 1.1 -0.5 Southeast Asia (N = 4): 3.9 1.9 2.0 2.5 1.4 1.2 Southeast Asia Indonesia 4.5 1.8 2.7 2.9 1.6 1.3 Southeast Asia Malaysia 4.6 2.1 2.5 3.5 1.4 2.1 Southeast Asia Philippines 3.6 2.4 1.2 2.0 2.1 -0.1 Southeast Asia Thailand 3.0 1.4 1.6 1.7 0.4 1.3 LAC 3.1 2.2 0.9 2.1 1.5 0.6 Central America (N = 4): 3.2 2.5 0.7 2.4 1.7 0.7 Central America El Salvador 2.7 2.5 0.2 1.3 1.2 0.1 Central America Guatemala 3.5 2.8 0.7 3.4 2.8 0.6 Central America Mexico 3.1 2.5 0.6 1.7 1.2 0.5 Central America Panama 3.5 2.3 1.2 3.0 1.5 1.5 South America (N = 4): 3.1 2.0 1.1 1.9 1.3 0.6 South America Chile 2.2 1.7 0.5 1.4 1.0 0.4 South America Colombia 3.2 1.9 1.3 1.9 1.7 0.3 South America Ecuador 3.8 1.9 1.9 2.7 1.1 1.6 South America Peru 3.2 2.4 0.8 1.7 1.5 0.2 MENA 3.6 2.6 1.0 2.1 1.6 0.5 Middle-East (N = 2): 4.5 2.8 1.6 2.4 1.8 0.6 Middle-East Iran 3.9 2.6 1.3 2.0 1.3 0.7 Middle-East Jordan 5.0 3.0 1.9 2.9 2.4 0.4 Northern Africa (N = 2): 2.7 2.3 0.4 1.7 1.3 0.4 Northern Africa Egypt 2.4 2.2 0.2 2.0 1.7 0.3 Northern Africa Tunisia 3.0 2.4 0.6 1.5 0.9 0.5 AFRICA 4.9 2.9 2.1 4.1 2.4 1.7 Eastern Africa (N = 5): 4.9 2.8 2.1 3.7 2.2 1.4 Eastern Africa Central Afr. Rep.* 3.5 2.4 1.1 2.1 2.0 0.1 Eastern Africa Ethiopia 4.6 2.7 1.9 3.8 2.0 1.7 Eastern Africa Kenya 5.7 2.8 2.9 4.4 2.4 2.0 Eastern Africa Madagascar 5.1 2.5 2.6 4.7 2.3 2.5 Eastern Africa Malawi 5.6 3.7 1.9 3.5 2.6 0.9 Western Africa (N = 5): 4.9 2.9 2.0 4.5 2.6 1.9 Western Africa Burkina-Faso 6.0 3.0 3.0 6.8 3.1 3.7 Western Africa Ghana 4.2 2.5 1.8 4.0 1.8 2.2 Western Africa Ivory Coast 5.7 2.7 3.0 3.3 2.4 1.0 Western Africa Mali 4.5 3.4 1.1 5.2 3.5 1.7 Western Africa Senegal 4.1 2.8 1.4 3.2 2.5 0.8 All Countries 3.8 2.3 1.6 2.8 1.7 1.1 Notes: This table shows the decomposition of annual urban growth into annual natural increase and annual residual migration (%) for 33 developing countries (1960-2010). * The Central African Republic belongs to Central Africa, but data is missing for other countries of the region. We have included it in Eastern Africa. Averages are not weighted by population. See the Online Data Appendix for data sources.

A. 7 Appendix Table 3: Natural Increase Source Information by Country

Panel A: Historical Data for Industrial Europe (1800-1910)

Country Region Years Main Sources Belgium Europe 1866-1905 Annuaires Statistiques de la Belgique. Belgium. Ministere de l’Interieur. Various volumes. England Europe 1700-1950 Newsholme, A. (1911), The Declining Birth Rate, Its National and International Signiﬁcance. London: Cassell & Company Limited. Friedlander, D. (1969). Demographic Responses and Population Change, Demography 6 (4): 359-381. Williamson, J. (1990). Coping with City Growth During the British Industrial Revolution. Cambridge: Cambridge University Press. France Europe 1852-1910 Statistique Annuelle du Mouvement de la Population. France. Statistique Generale. Various volumes. Germany Europe 1851-1912 Weber, A. (1899). The Growth of Cities in the 19th Century. New York: The MacMillan Company. Stedman, T. (1904). Medical Record. New York: William Wood and Company. Pollock, H., and W. Morgan (1913). Modern Cities: Progress of the Awakening for Their Betterment Here and in Europe. New York: Funk & Wagnalls Company. Holmes, S. (1921). A Study of Present Tendencies in the Biological Development of Civilized Mankind. New York: Harcourt, Brace and Company. Vogele, J. (2000). Urbanization and the urban mortality change in Imperial Germany. Health & Place 6: 41-55. Netherlands Europe 1815-1909 Margaret Sanger (1917). The Case for Birth Control. Modern Art Printing Company. Wintle, M. (2004). An Economic and social History of the Netherlands, 1800-1920: Demographic, Economic and Social Transition. Cambridge: Cambridge University Press. Sweden Europe 1800-1910 Dyson, T. (2011), The Role of the Demographic Transition in the Process of Urbanization. Population and Development Review, 37: 34-54. United States Europe 1825-1910 Various Census Reports. Duffy J. (1968). A History of Public Health in New York City, 1625-1866. New York: Russell Sage. Rosenwaike, I. (1972). Population History of New York City. Syracuse: Syracuse University Press. Haines, M. (2001). The Urban Mortality Transition in the United States, 1800-1940. Annales de Demographie Historique 101: 33-64. Michael R. Haines, The Population of the United States, 1790-1920. Cambridge: Cambridge University Press, 2008. Ferrie, J.P.,and W. Troesken (2008). Death and The City: Chicago’s Mortality Transition, 1850-1925. Explorations in Economic History, 45, 1: 1-16.

A. 8 Appendix Table 3: Natural Increase Source Information by Country

Panel B: Historical Data for Developing Countries (1960-2010)

Country Region Years Main Sources Bangladesh Asia 1965, 1974, 1985, UN Statistical Yearbook, Population and Housing Census 1991, 2004 (Report), Demographic and Health Survey (Report), CICRED Monograph Burkina Faso Africa 1960, 1975, 1985, Population and Housing Census (Report), Demographic 1996, 2006 and Health Survey (Report) Central Afr. Rep. Africa 1960, 1975, 1988, Population and Housing Census (Report), Demographic 1994-1995, 2003 and Health Survey (Report), Fertility Survey (Report) Chile LAC 1960, 1970, 1983, UN Statistical Yearbook, Population and Housing Census 1995, 2006 (Report), CICRED Monograph China Asia 1965, 1975, 1985, UN Statistical Yearbook, Population and Housing Census 1995, 2000 (Report), CICRED Monograph Colombia LAC 1965, 1973, 1985, UN Statistical Yearbook, Population and Housing Census 1990, 2000 (Report), Demographic and Health Survey (Report), CICRED Monograph Côte d’Ivoire Africa 1965, 1975, 1988, Population and Housing Census (Report), Demographic 1994, 1999 and Health Survey (Report), Fertility Survey (Report) Ecuador LAC 1968, 1974, 1985, UN Statistical Yearbook, Population and Housing Census 1993, 2005 (Report), Demographic and Health Survey (Report) Egypt MENA 1962, 1975, 1985, UN Statistical Yearbook, Population and Housing Census 1996, 2006 (Report), Demographic and Health Survey (Report), CICRED Monograph El Salvador LAC 1965, 1975, 1985, UN Statistical Yearbook, Population and Housing Census 1996, 2006 (Report), Demographic and Health Survey (Report) Ethiopia Africa 1967, 1974, 1984, Population and Housing Census (Report), Demographic 1994, 2000 and Health Survey (Report), Fertility Survey (Report) Ghana Africa 1960, 1970, 1984, Population and Housing Census (Report), Demographic 1992, 2000 and Health Survey (Report), CICRED Monograph Guatemala LAC 1965, 1975, 1980, UN Statistical Yearbook, Population and Housing Census 1992, 1999 (Report), Demographic and Health Survey (Report) India Asia 1961, 1970, 1985, UN Statistical Yearbook, Population and Housing Census 1989, 2005 (Report), Demographic and Health Survey (Report), CICRED Monograph Indonesia Asia 1961, 1975, 1985, UN Statistical Yearbook, Population and Housing Census 1993, 2003 (Report), Demographic and Health Survey (Report), CICRED Monograph Iran MENA 1968, 1975, 1986, UN Statistical Yearbook, Population and Housing Census 1990, 2005 (Report), CICRED Monograph Japan Asia 1965, 1975, 1985, UN Statistical Yearbook, Population and Housing Census 1995, 2005 (Report), CICRED Monograph Jordan MENA 1965, 1973, 1990, UN Statistical Yearbook, Population and Housing Census 1997, 2002 (Report), Demographic and Health Survey (Report) Kenya Africa 1962, 1969, 1979, Population and Housing Census (Report), Demographic 1989, 1999 and Health Survey (Report), Fertility Survey (Report), CICRED Monograph

A. 9 Country Region Years Main Sources Madagascar Africa 1965, 1975, 1985, Population and Housing Census (Report), Demographic 1993, 2000 and Health Survey (Report), Fertility Survey (Report) Malawi Africa 1970, 1977, 1987, Population and Housing Census (Report), Demographic 1998, 2008 and Health Survey (Report), Fertility Survey (Report) Malaysia Asia 1960, 1970, 1980, UN Statistical Yearbook, Population and Housing Census 1990, 2006 (Report), CICRED Monograph Mali Africa 1960, 1976, 1987, Population and Housing Census (Report), Demographic 1998, 2006 and Health Survey (Report), Fertility Survey (Report) Mexico LAC 1965, 1974, 1980, UN Statistical Yearbook, Population and Housing Census 1990, 2006 (Report), Demographic and Health Survey (Report) Pakistan Asia 1968, 1971, 1984, UN Statistical Yearbook, Population and Housing Census 1988, 2000 (Report), Demographic and Health Survey (Report), CICRED Monograph Panama LAC 1965, 1969, 1985, UN Statistical Yearbook, Population and Housing Census 1995, 2006 (Report), CICRED Monograph Peru LAC 1960, 1970, 1986, Population and Housing Census (Report), Demographic 1990, 2000 and Health Survey (Report), Fertility Survey (Report), CICRED Monograph Philippines Asia 1968, 1978, 1988, UN Statistical Yearbook, Population and Housing Census 1998, 2003 (Report), Demographic and Health Survey (Report), CICRED Monograph Senegal Africa 1960, 1976, 1988, Population and Housing Census (Report), Demographic 1993, 2002 and Health Survey (Report), Fertility Survey (Report) South Korea Asia 1960, 1966, 1970, UN Statistical Yearbook, Population and Housing Census 1989, 2006 (Report), CICRED Monograph Sri Lanka Asia 1961, 1971, 1983, UN Statistical Yearbook, Population and Housing Census 1987, 2001 (Report), Demographic and Health Survey (Report), CICRED Monograph Thailand Asia 1965, 1975, 1985, UN Statistical Yearbook, Population and Housing Census 1995, 2005 (Report), Demographic and Health Survey (Report), CICRED Monograph Tunisia MENA 1966, 1972, 1980, UN Statistical Yearbook, Population and Housing Census 1989, 2005 (Report), Demographic and Health Survey (Report), CICRED Monograph

A. 10 Gender Ratios and Female Labor Market Outcomes: Evidence from large-scale Mexican Migration ∗

Emily Conover, Melanie Khamis and Sarah Pearlman

December 6, 2013

1 Long Abstract

The natural ratio of men to women is estimated to be approximately one to one. However, sex-selective abortion, infanticide, diseases, famines, violence, wars, incarceration and migration can alter this ratio and lead to missing men or missing women. The relative scarcity of men or women with respect to the other gender has important consequences on economic and social outcomes, such as the marriage and labor markets, and in decisions regarding investments in human capital and fertility. The relative scarcity of men, due to wars, violence and incarceration has effects on female marriage prospects and labor force participation. Women are less likely to marry and have children, while at the same time out-of- wedlock child bearing increases (Abramitzky et al. 2011; Charles and Luoh 2010). The evidence on female labor force participation and labor market outcomes is less clear: Acemoglu et al. (2004) find increases in labor force participation of women in the US after WWII while Goldin (2001) finds a lower effect on female employment.

∗Conover: Hamilton College, [email protected]; Khamis: Wesleyan University and IZA, [email protected]; Pearlman (corresponding author): Vassar College, [email protected] . Changes in gender ratios, henceforth a lower ratio of men to women, and the subsequent changes in female labor market outcomes such as labor force participation, types of employment and occupations need to be documented further, in particular in the context of developing countries. In this paper, using large-scale migration of Mexican men to the US as a shock to the gender ratio, we investigate the effects of a lower male- female gender ratio in the female labor market.1 This migration affected states and cohorts differently, where working age men were more likely to migrate abroad. Following Raphael (2013) we exploit the variation over time and across Mexican states in the gender ratio to identify the effect on female labor force participation and labor market outcomes. In particular, we explore whether women were able to break into occupations that traditionally have had a higher male participation, as fewer men are around to work in these occupations. Recent literature on gender in the labor market in Mexico by Juhn et al. (2013, 2014) document changes in occupations for Mexican females due to trade liberalization, where females increased employment and wage shares in blue-collar jobs but not in white-collar jobs. Using data from the Mexican census from 1960 to 2000,2 we first document variation in international migration and gender ratios across states. In a regression of gender ratios on a measure of international migration we find evidence that the percentage of households that have an international migrant is negative and significant at the 1 percent level. Thus changes in the gender ratio are related to the large-scale migration of Mexican males. Moreover, in the labor market we find a significant and negative relationship between changes in the gender ratio and female self-employment and white-collar jobs. This implies that as the proportion of men declines, the proportion of women in self-employment and white-collar jobs increases. Fi- nally, we create an occupation segregation index, following Beller (1985), and find some indication of a positive relationship between the changes in gender ratio and this segregation index. This indicates that as the male-female gen-

1For direct eﬀects of migration on the Mexican labor market see Chiquiar and Hanson 2005 and Mishra 2007. 2We have not included 2010 due to the economic crisis, which resulted in return migration.

2 der ratios decline, occupations become less segmented by gender, suggesting that women may be moving into occupations previously dominated by men as men become more scarce. JEL Codes: J16, F22,J21, J24 Keywords: gender ratios, migration, labor force participation, occupations

2 References

Abramitzky, Ran, Delavande, Adeline and Luis Vasconcelos. 2011. ”Marrying up: The role of sex ratio in assortative mating.” American Economic Journal: Applied Economics, 3:124-157.

Acemoglu, Daron, David H. Author and David Lyle. 2004. ”Women, War, and Wages: The Eﬀect of Female Labor Supply on the Wage Structure at Midcentury.” Journal of Political Economy, 112(3): 497-551.

Amuedo-Dorantes, Catalina and Shoshana Grossbard. 2007. ”Cohort-level sex ratio eﬀects on women’s labor force participation.”Review of Economics of the Household, 5(3): 249-278.

Angrist, Joshua. 2002. ”How Do Sex Ratios Aﬀect Marriage and Labor Mar- kets? Evidence from America’s Second Generation.”The Quarterly Journal of Economics, 117 (3): 997-1038.

Beller, Andrea. H. 1985. ”Changes in the Sex Composition of U. S. Occupa- tions, 1960-1981.”The Journal of Human Resources, 20 (2): 235-250.

Charles, Kerwin Koﬁ and Ming Ching Luoh. 2010. ”Male Incarceration, the Marriage Market and Female Outcomes.”Review of Economics and Statistics, 92:614-627.

Chiquiar, David and Gordon H. Hanson. 2005. ”International Migration, Self- Selection, and the Distribution of Wages: Evidence from Mexico and the United States.”Journal of Political Economy, 113(2): 239-281.

3 Goldin, Claudia. 1991. ”The Role of World War II in the Rise of Women’s Employment.” American Economic Review, 81 (4): 741-56.

Juhn, Chinhui, Gergely Ujhelyi and Carolina Villegas-Sanchez. 2013. ”Trade Liberalization and Gender Inequality.” American Economic Review: Papers & Proceedings, 103(3): 269-273.

Juhn, Chinhui, Gergely Ujhelyi and Carolina Villegas-Sanchez. 2014. ”Men, Women, and Machines: how trade impacts gender inequality.” Journal of Development Economics, 106: 179-193.

Mishra, Prachi. 2007. ”Emigation and wages in source countries: Evidence from Mexico.” Journal of Development Economics, 82: 180-199.

4 U.S. Border Enforcement and Mexican Immigrant Location Choice∗

Sarah Bohn Todd Pugatch Public Policy Institute of California Oregon State University and IZA

February 25, 2014

Abstract We provide the first evidence on the causal effect of border enforcement on the full spatial distribution of Mexican immigrants to the United States. We address the endogeneity of border enforcement with an instrumental variables strategy based on administrative delays in budgetary allocations for border security. We find that 1,000 additional border patrol officers assigned to prevent unauthorized migrants from entering a state decreases that state’s share of Mexican immigrants by 21.9%. Our estimates imply that if border enforcement had not changed from 1994-2011, the shares of Mexican immigrants locating in California and Texas would each be 8 percentage points greater, with all other states’ shares lower or unchanged.

JEL classiﬁcation: J15, J61. Keywords: unauthorized immigration, border enforcement, Mexico, residential location choice

∗Author contacts: [email protected], [email protected]. We thank Scott Borger, Laura Kawano, Bryan Roberts, Victor Tremblay, and various seminar participants for helpful input, and Andrew Spaeth for research assistance. Pugatch acknowledges support from an Oregon State University Faculty Release Time grant.

1 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch

1 Introduction

Since the early 1990s, Mexican immigrants to the United States have increasingly chosen non- traditional locations, i.e., locations other than those, such as California and Texas, with historically high Mexican density (Card and Lewis 2007). The reasons for this diﬀusion of the Mexican migrant population are complex and varied, but not yet well quantiﬁed. A hypothesis advanced by Massey,

Durand and Malone (2002) is that increased border enforcement in traditional migrant crossing areas has led migrants to choose alternative border crossing routes, and in turn to choose non- traditional destinations. According to this view, an unintended consequence of strengthened border enforcement is a change in traditional settlement patterns among Mexican immigrants. In fact, between 1980 and 2010, the share of Mexican immigrants in California and Texas—the two states where border enforcement increases were most concentrated—fell from 80 percent to 58 percent.

Of course, enforcement is not the only potential driver of location choice. Economic opportunities, interior enforcement policies, and social factors are also hypothesized to play a role.

To our knowledge, however, no causal analysis of the effect of border enforcement on the diffusion of Mexican migrants has been conducted. Indeed, the hypothesis is difficult to evaluate because of data limitations (crossing locations of Mexican immigrants to the U.S. are not available) and the endogeneity of border enforcement (the level of enforcement is likely responsive to illegal crossing behavior). This paper quantifies the causal effect of border enforcement on immigrant location choice. We overcome the measurement problem by constructing an index that combines data on enforcement intensity across sectors of the southern border and over time with the historical destination choice of immigrants, drawing on methods developed in the literature (Pugatch and

Yang 2011, Borger, Hanson and Roberts 2012). We address the endogeneity of the enforcement index to contemporaneous migration ﬂows by relying on administrative delay in enforcement budget allocations. Because of this institutional structure, lagged values of our enforcement index provide identifying variation for the eﬀect of enforcement on immigrant location choice.

We ﬁnd that increases in border enforcement decreased the share of Mexican immigrants across

1 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch

U.S. destinations. Specifically, we find that every 1,000 additional border patrol officers assigned to prevent unauthorized migrants from entering a state decreases that state’s national share of

Mexican immigrants by 21.9%. These results are stable across subgroups, with slightly stronger eﬀects for likely or estimated unauthorized population shares, and null eﬀects for immigrants less likely to be border crossers. Our estimates imply that if border enforcement had not changed from

1994-2011, the shares of Mexican immigrants locating in California and Texas would each be 8 percentage points greater, with all other states’ shares lower or unchanged.

This study is motivated by the change in immigrant settlement patterns depicted in Figure 1 and the coincident increase in border enforcement displayed in Figure 2. The concentration of Mexican immigrants in a handful of traditional destinations began to decline in the 1990s, with states in the

Southeast, Great Plains, and Midwest experiencing the fastest growth in Mexican immigration over the last two decades.1 At the same time, control of the southern U.S. border increased substantially.

As shown in Figure 2, border enforcement increased in intensity concurrently with the falling share of Mexican immigrants in traditional destinations, prompting Massey et al. (2002) to hypothesize a causal relationship between them. “The massive buildup of enforcement resources in southern

California, El Paso, and around other ports of entry,” they wrote, “diverted the migratory ﬂows away from traditional points of destination” (Massey et al. 2002, p. 127).

Gaining a better understanding of the eﬀect of border enforcement on Mexican immigrant settlement patterns should be of major interest to policymakers. Immigrants play an important role in equilibrating local labor markets (Borjas 2001, Cadena and Kovak 2013), and their large share of the workforce has prompted renewed calls for national immigration reform in recent years.

State legislatures have entered the immigration policymaking arena in the absence of federal reform, and evidence suggests that state policies themselves are driven by rapid inﬂows of new immigrant populations (Boushey and Luedtke 2011, Hopkins 2010). Because Mexicans constitute the largest immigrant group in the United States and have a high propensity to enter the United States without

1These patterns are also amply documented in Card and Lewis (2007) and Singer (2004).

2 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch authorization, their location decisions hold particular importance. Moreover, attempts to thwart unauthorized immigration come at considerable expense, with the U.S. Customs and Border Patrol budget for 2012 at nearly $12 billion (Department of Homeland Security 2013). The role that border enforcement plays in Mexican immigrant locations is thus important at both the national and local levels.

Before proceeding with exposition of our methodological approach, we brieﬂy place this paper in the context of two broad literatures—one on impacts of border enforcement and the other related to immigrant location choice. The inﬂuence of border enforcement on aggregate migration

ﬂows is the subject of considerable previous research (see among others Kossoudji 1992, Hanson and Spilimbergo 1999, Cornelius 2001, Reyes, Johnson and Van Swearingen 2002, Orrenius 2004,

Gathmann 2008, Angelucci 2012). Increases in border enforcement alter migrant crossing locations

(Cornelius 2001, Massey et al. 2002, Sorensen and Carrion-Flores 2007) and increase migration costs (Orrenius 2004, Roberts, Hanson, Cornwell and Borger 2010). While apprehensions at the border are apparently correlated with increases in enforcement (Orrenius 2004), it is unclear that illegal immigration is correlated with enforcement, in part because it is diﬃcult to measure at- tempted crossing. However, research has indicated that one unintended eﬀect of increased border enforcement may be to increase the length of stays in the U.S. by discouraging immigrants currently located in the U.S. from engaging in return and circular migration (Reyes et al. 2002).

While these papers, and many others, have studied migration decisions to and within the U.S, none (to our knowledge) has evaluated the causal role of border enforcement on the full spatial distribution of immigrants. The closest antecedents to this study are Pena (2009) and Lessem (2012), both of which develop models in which border enforcement may inﬂuence Mexican immigrant residential locations, rather than just aggregate ﬂows.2 However, Pena’s (2009) analysis is limited to agricultural workers in four U.S. states, while Lessem’s (2012) sample is limited to returned migrants from rural Mexican communities that are not nationally representative. Crucially, neither

2Lessem (2012) does not explicitly address the role of border enforcement in immigrant location decisions within the U.S., but the structural model she develops could be used for this purpose.

3 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch study accounts for the endogenous response of border policy to migration ﬂows. In contrast, our paper uses large-scale, nationally representative data on all Mexican immigrants to the U.S., and isolates plausibly exogenous variation in border enforcement.

Why might border enforcement inﬂuence the location of immigrants within the U.S. in addition to altering the magnitude of overall migration ﬂows? As arguably the most mobile demographic group in the U.S., immigrants consider several factors when choosing where to reside, including the presence of others from their home communities (Bartel 1989, Munshi 2003), local employment opportunities (Cadena 2013a, Cadena 2013b), state immigration policies (Bohn, Lofstrom and

Raphael 2011), and migration costs (Orrenius 1999, Chiquiar and Hanson 2005). The link between enforcement and location choice is most closely related to the latter. For illustration, suppose that there is a unique mapping between border crossing locations and U.S. destinations, so that crossing successfully in a particular location constrains migrants to locate in the associated U.S. destination. Then changes in enforcement at particular crossing points will alter the relative costs associated with U.S. destinations, leading marginal migrants to change both their border crossing and destination.

Of course, in reality migrants may reach any U.S. destination from any border crossing. Nonethe- less, crossing locations vary in enforcement intensity, direct travel costs to reach a destination, foregone earnings during travel, and the availability of pre-existing networks to assist with arrival and employment at the destination. If enforcement intensity rises at the crossing location closest to a migrant’s intended destination, alternate crossing locations become relatively more attractive. If migration costs to the originally intended destination become suﬃciently large, the migrant’s preference may change to an alternate destination. Alternately, a migrant intended for the original destination may remain in Mexico, with a migrant willing to reside in a diﬀerent destination taking his place, consistent with previous studies that have documented changes in migrant composition in response to border enforcement (Orrenius and Zavodny 2005, Ibarrraran and Lubotsky 2007, Angelucci 2012, Lozano and Lopez 2013).

4 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch

The propensity for return migration may also change differentially across destinations due to border enforcement, as circular migrants who anticipate more difficult round trips between the U.S. and Mexico choose instead to remain in the U.S. (Reyes et al. 2002). The effects on prospective immigrants and return migrants work in opposite directions, making the role of border enforcement in immigrant location choice theoretically ambiguous. This multiplicity of channels underscores the need for a theoretical framework and rigorous empirical analysis. We present a migration choice model that formalizes this argument and connects it to our empirical analysis in the following section. Our focus is on consistent estimation of the total effect of border enforcement on the distribution of the immigrant population across destinations. We leave the question of the spatial dimension of selection in response to border enforcement to future work.

2 Model and Methodology

Suppose, as in Sjaastad (1962) and Borjas (1987), that a migrant chooses to reside in the location that oﬀers the highest utility net of migration costs. We adapt their models to a random utility framework, following closely the exposition of Scanlon, Chernew, McLaughlin and Solon (2002) and

Cadena (2013a) while placing emphasis on the role of border enforcement in the migrant’s location decision. Conditional on migrating,3 the value function for immigrant i locating in U.S. destination k in period t is:

Vikt = θekt + Xktβ + ikt (1) where e is the enforcement intensity associated with locating at the destination in that period, X is a vector of controls capturing the economic opportunities and other observable characteristics of a destination relevant to location choice, and is the error term. (The controls X do not carry an i

3The model could easily be extended to include the migration decision by specifying the choice to remain in the source country as the outside option. However, this choice will be unobserved when using U.S. data, so we focus on the case where a migrant is choosing among locations in the destination country.

5 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch subscript because we will conduct the analysis using destination-level aggregates.) The immigrant chooses destination k if Vikt ≥ Vijt for all j 6= k. Enforcement aﬀects immigrant location choice by altering the costs of residing in a destination, as described in the introduction. We formalize this argument and provide more detail in Appendix A. In addition to altering costs for unauthorized immigrants, enforcement can also aﬀect the destination choices of authorized immigrants if migrants from the same source country prefer to live in geographic proximity (Bartel 1989, Munshi 2003).

Although straightforward, several challenges arise immediately in this formulation. First, it is not obvious how to measure the level of enforcement e faced by potential migrants to a destination k, particularly for destinations in the interior. Second, even if enforcement can be measured for a destination, such enforcement is likely endogenous to immigrant location decisions. For instance, if the government responds to a rapid influx on unauthorized immigrants at a destination by increasing enforcement, then enforcement intensity e will be correlated with the error term, preventing us from consistently estimating θ. We address the first of these challenges before returning to a discussion of how we use (1) as the basis of our empirical specification. We close the section with a description of an instrumental variables strategy that addresses the second concern.

Consider the problem of measuring enforcement faced by a prospective migrant to destination k. No large-scale, nationally representative dataset exists that provides information on the current U.S. locations of Mexican immigrants and their point of entry. Even if such a dataset were available, it is not clear that enforcement at the migrant’s point of entry is the proper measure of enforcement that he or she faced. Migrants have a choice among crossing locations, and could be inﬂuenced by enforcement at alternative locations as well. To address this issue, we build on methods developed by Pugatch and Yang (2011) and Borger et al. (2012) to construct a new measure of border enforcement intensity. We combine data on the historical border crossing and destination patterns of Mexican immigrants to the U.S. with current measures of border policy to assign a border enforcement index to U.S. locations.

The U.S. Customs and Border Protection (CBP) splits the southern border with Mexico into

6 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch

9 sectors, with each sector responsible for preventing unauthorized crossings of people and goods in its territory. CBP adjusts enforcement intensity across sectors to meet perceived security needs, leading to variation in enforcement across sectors and over time. This variation will not aﬀect the desirability of locating in all U.S. destinations equally. Suppose we observed, for example, that prior to our sample period all migrants to Missouri came from one of two sectors, the Rio Grande

Valley (eastern Texas) and Laredo sectors. Suppose further that 10% of migrants crossing in the

Rio Grande Valley sector located in Missouri, while Missouri’s share of the Laredo sector was 5%.

Then a natural measure of border enforcement intensity for Missouri would be to assign 10% of Rio

Grande Valley and 5% of Laredo’s enforcement to Missouri, with all other sectors contributing zero.

This sector-weighted average of enforcement intensity leads to the following U.S. location-speciﬁc enforcement index:

9 X ekt = ωksest (2) s=1 where ωks is the share of immigrants who cross at border sector s who locate in destination k, and est is enforcement intensity at sector s at time t. We use the number of border patrol agents

(in thousands) as our enforcement measure, so that the index ekt may be interpreted as border patrol agents assigned to prevent unauthorized immigration to location k at time t. Importantly, the weights used to construct the index are predetermined with respect to enforcement levels, so that enforcement patterns do not cause the observed immigrant destination choices. Identifying variation for the eﬀect of border enforcement on immigrant location choice therefore comes from three sources: spatial variation in border enforcement across sectors; time series variation in border enforcement within sectors; and cross-sectional variation in the propensity of immigrants to follow particular routes from border crossings to U.S. destinations.

Return now to (1), the migrant’s value function for locating in a particular destination. Let

ikt = ηkt + uikt, so that the error may be decomposed into a destination- and time-speciﬁc component η and an idiosyncratic component u that we assume to be i.i.d. Type I Extreme Value. Then

7 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch

the share of immigrants choosing destination k at time t, denoted πkt, may be expressed as:

exp (θekt + Xktβ + ηkt) πkt = P (3) j exp (θejt + Xjtβ + ηjt)

Note that this is just the familiar multinomial logit formula with an unobserved destination- and time-speciﬁc component η included. Letting the sample share of immigrants S diﬀer from the population share π by a multiplicative error ν (assumed uncorrelated with π) and taking logs yields:

log(Skt) = θekt + Xktβ + ηkt − log(Dt) + νkt (4)

P where Dt = j exp (θejt + Xjtβ + ηjt), with the subscript acknowledging that this term is identical across all destinations at time t. Assume that ηkt may be further decomposed into time-invariant and time-varying components as ηkt = ζk + φkt. Taking ﬁrst diﬀerences of S yields:

∆ log(Skt) = θ∆ekt + ∆Xktβ − ∆ log(Dt) + ∆φkt + ∆νkt (5)

An empirical specification based on this first-differenced equation offers several benefits relative to multinomial choice estimation. First, it allows for linear estimation with easily interpretable coefficients; the coefficient of interest θ is the ceteris paribus effect of a one-unit change in enforcement intensity on the percent change in the share of immigrants choosing a destination. Second, the specification allows for straightforward incorporation of factors common to all destinations within a time period through the inclusion of period fixed effects, which estimate ∆ log(Dt). Third, the specification also controls for permanent attributes of a location, such as climate, amenities, and the role of durable immigrant networks through the term ζ, which differences out of the equation.

A remaining concern, however, is correlation between the destination- and time-speciﬁc innovation ∆φkt and changes in enforcement intensity. If border oﬃcials respond to shocks that increase the share of immigrants choosing a location by increasing enforcement intensity, then our estimates

8 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch

of θ will be upward biased. We address this issue by instrumenting for ∆ekt with enforcement lagged two periods. As Borger et al. (2012) note, administrative delays in CBP budget approval lead to 2-year lags between initial requests and realized outlays. To set its budget, CBP imple- ments a process known as the “Operational Requirements-Based Budget Program” (ORBBP), in which border patrol sectors request resources to enforce immigration and customs laws based on an assessment of current needs.4 This assessment is based on all available information at the time of the request, including data maintained by CBP on current enforcement levels and apprehensions of undocumented migrants. ORBBP occurs annually, but the lag between initial requests and resource allocation exceeds one year.

Although budget allocations determined through ORBBP follow a fairly rigid process, the

Department of Homeland Security may also address unexpected border enforcement needs through a

“surge” of agents or other resources to particular border sectors. Because these additional resources may be contemporaneously correlated with immigrant ﬂows, we are concerned about inconsistent estimates obtained through OLS. However, initial budget requests are based on an assessment of enforcement needs before such unexpected shocks are realized. If these initial requests are uncorrelated with the change in unobserved factors realized two years later, then the identifying assumption that ek,t−2 is uncorrelated with ∆φkt will hold. This approach also mirrors one that has been used in the labor supply literature, as in Ziliak (1997).

The choice of control variables to include in X is also important to isolate the role of border enforcement from other factors inﬂuencing immigrant location choice. We include a host of destination-speciﬁc controls for economic conditions most relevant to prospective immigrants: unemployment rates, hourly wages, GDP per capita, manufacturing output, agricultural output, construction output, and new housing permits. The economic sectors are chosen because of the high concentration of Mexican immigrants employed in these industries. Moreover, including new housing permits separately from current output helps to capture the role of economic expectations

4We base this section on information learned in discussions with former Department of Homeland Security oﬃcials.

9 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch in immigrant location decisions.

We also include measures of state-level legislation aimed at immigrants, which have proliferated since 2004. Arguably in response to increasing unauthorized immigrant populations and federal inaction on comprehensive policy reform, state legislatures have enacted hundreds of laws between

2004 and the present. Most immigrant-related state laws are intended to deter employment or restrict services to unauthorized immigrants, and a few have been shown to be eﬀective deterrents, at least to immigrant location choice, if not to the law’s stated intent (Bohn et al. 2011). Because policymakers see both border enforcement and state-level legislation as important deterrents to unauthorized immigration, including data on this legislation is critical to isolate the role of border enforcement in immigrant location decisions.

3 Data

To conduct the analysis, we need data on population shares of Mexican immigrants (and other subpopulations) by U.S. destination; enforcement intensity by border patrol sector; choices of border crossings and destinations by migrants to construct the weights used in the enforcement index; and destination-speciﬁc control variables. We describe the sources of these data below, with additional details in Appendix B.

The main source for population data is the U.S. Current Population Survey (CPS), 1994-2011.

We classify immigrants by place of birth, while natives are those born in the United States. We also combine the 2000 U.S. Census and American Community Survey (ACS) 2001-2011 into an alternate dataset to check the consistency of the CPS results. We work with state-level aggregates derived from these sources.5 Relative to the Census/ACS, the CPS provides a longer time series, including a set of years (1994-1999) with notable ﬂuctuations in border enforcement. These features

5We prefer the U.S. state to other levels of geographic aggregation, such as the metropolitan statistical area (MSA), because there will be fewer state-year cells with zero immigrants than alternative geographic units. Passel and Cohn (2010) cautions against using the CPS and ACS for MSA-level analysis when focusing on unauthorized immigrants. States also leave greater scope to control for changing economic conditions because of greater data availability.

10 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch lead us to prefer the CPS despite the larger sample sizes available in the Census/ACS.

Figure A1 compares the numbers of Mexican immigrants between the Census, ACS, and CPS.

The CPS has notably lower counts of Mexican immigrants than the other sources over most of the period, with a considerable dip in 2008 likely due to a change in the Census Bureau’s revision to population controls in that year. In particular, the Bureau made sizeable changes to the methodology for estimating changes in population due to international migration—disproportionately affecting estimates of foreign-born persons (Passel and Cohn 2010). Although these differences are prob- lematic for estimates of Mexican immigrant population levels, they are less likely to bias results for the national share of immigrants at a particular location, our outcome of interest. The lower immigrant counts in the CPS will bias our current results compared to the Census/ACS only if the two sources differ because the CPS is differentially correlated with border enforcement. We have no reason to believe that this is the case, and will present results using both data sources to check for consistent results. Additionally, excluding data for 2008 from the CPS sample does not alter our findings (results not shown but available upon request).

Data on border enforcement are from the U.S. Department of Homeland Security (DHS). DHS reports the number of border patrol agents employed through the Customs and Border Protection agency annually in each sector of the southern U.S. border. We would prefer to measure border enforcement using linewatch hours, a more direct measure of enforcement used in several related studies (Hanson and Spilimbergo 1999, Orrenius 1999, Hanson, Robertson and Spilimbergo 2002,

Orrenius 2004, Gathmann 2008, Angelucci 2012, Lessem 2012), However, DHS stopped reporting linewatch hours in mid-2004, and denied our repeated Freedom of Information Act requests to obtain related information that could be used to extend the series. Figure A2 compares agent counts and linewatch hours for the years in which there is overlap. Although the graph shows slightly diﬀerent trends in these series, reﬂecting higher average annual linewatch hours per agent in more recent years, the series nonetheless track each other closely. This high correlation comports with DHS reports indicating the primary activity of border agents is toward linewatch (Department

11 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch of Homeland Security 2002, Simanski and Sapp 2013), and makes us conﬁdent that an enforcement index based on border patrol agents appropriately captures enforcement intensity.

Data on border crossing patterns used to construct weighted enforcement are from the Northern

Border Migration Survey (EMIF), a survey of migrants along the U.S.-Mexico border conducted by the Mexican government annually since 1993. We use the survey to construct, for each border patrol sector, the probability of entering each U.S. state. To do so, we assign each survey respondent to a border sector and a U.S. state according to the crossing point and place of main U.S. residence on his or her last trip to the U.S. We drop any respondents whose last trip was more than 10 years prior to the interview date in order to mitigate recall bias. The shares of migrants whose last trip to the U.S. occurred between 1983-1993 at border crossing s whose last U.S. residence was in state k are used to construct the crossing probabilities ω that appear in (2).6

Control variables used in the analysis come from various sources, with details in Appendix

B. Data on state-level economic conditions are from U.S. government sources. Data on state- level legislation aimed at immigrants was compiled from quarterly reports on all state laws related to immigrants from the National Conference of State Legislatures (NCSL). Our controls include passage of any deterrent state laws related to employment or enforcement, as of the date a law was signed by the state governor.

The diﬀusion of Mexican immigrants to new U.S. destinations, the phenomenon that motivates our inquiry, is documented in Table 1. The concentration of Mexican immigrants in traditional destinations—as measured by the shares in the top 5 states, top 10 states, and in California and

Texas—was nearly unchanged between 1980 and 1990. These shares dropped considerably between

1990 and 2000, however, with the share in the top 5 states falling from 90% to 76%. A further though less precipitous drop occurred between 2000 and 2010. Figure 1 gives a sense of which areas

6Given the availability of data on an immigrant’s crossing location and U.S. destination in the EMIF, one might reasonably ask why we do not use the EMIF to construct our outcome measures in addition to the enforcement weights. We prefer the CPS (and Census/ACS) for the outcome data because the much larger sample sizes (more than 1.5 million annually in the CPS compared to around 15,000 in the EMIF) will lead to more accurate measures of population shares. A similar argument applies to the Mexican Migration Project (MMP), which covers only selected Mexican communities, in addition to its relatively smaller sample.

12 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch absorbed these new migrants, with states in the Southeast, Great Plains, and Midwest experiencing the fastest growth in Mexican immigration. As Figure 2 shows, over most of this period, declining concentration of immigrants in traditional destinations was correlated with increased investment in border enforcement. This correlation, as noted above, prompts the hypothesis that directed increases in enforcement diverted Mexican immigrant ﬂows away from traditional destinations.

Figure 3 presents data broadly consistent with this story. Panel (a) shows border enforcement in selected sectors (only a subset are shown for clarity), including a substantial increase in enforcement in the San Diego border patrol sector in the mid-1990s that leveled oﬀ later in the decade. The Rio

Grande Valley (eastern Texas) sector also experienced an increase throughout the period, ending on a similar level as San Diego. The sharpest increase was in the Tucson sector, however. Panel (b) shows the share of unauthorized Mexican immigrants crossing at each sector. After remaining ﬂat for most of the period 1980-1995, San Diego began to lose share beginning the mid-1990s, while Rio

Grande Valley ended the period at a similar level as its historical average. Tucson’s share increased considerably over the same period as San Diego’s decline. Although the evidence is circumstantial, the ﬁgures do show a clear shift in enforcement and crossing activity from the traditional gateways on the western and eastern edges of the border towards the center.

This paper seeks to determine if these patterns also led to changes in the residential locations of Mexican immigrants. If changes in border enforcement during our sample period led immigrants to change their crossing patterns but not their destinations, then we would expect to see a weaker link between crossing location and destinations over time. In fact, we observe the opposite. Across all border sector-U.S. state pairs, the correlation coeﬃcient between the state’s share of migrants from a crossing location (the weights ω in (2)) and the distance between them is -.29 during 1983-

1993, the period on which our weights are based. In the period 1994-2011, this correlation rose in magnitude to -.31. If migrants were changing their crossing locations in response to enforcement but not their destinations conditional on crossing, then border enforcement led to changes in immigrant locations. Although this simple correlation is not a substitute for a formal analysis, it does suggest

13 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch that our premise matches basic patterns in the data.

The index we use to measure the border enforcement intensity faced by potential migrants to each U.S. state consists of two components: 1) enforcement intensity by border patrol sector and

2) weights representing the propensity of immigrants crossing at a sector to locate in a particular

U.S. state. We have already presented data on (1). Figure 4 shows data on (2), in the form of maps showing Mexican immigrant destinations for selected border crossings. Panel (a) shows the locations chosen from 1983-1993 by migrants crossing in the Rio Grande Valley sector (eastern Texas, with representative city Brownsville circled). Unsurprisingly, the modal destination is Texas, with southeastern states also popular. Panels (b) and (c) show the analogous maps for the El Paso

(western Texas and New Mexico) and San Diego sectors. As in panel (a), immigrants crossing in these sectors choose destinations that are geographically proximate. This variation in U.S. destinations, conditional on border crossing location, allows us to transform the variation in enforcement across border patrol sectors into state-speciﬁc measures of border enforcement intensity.

Figure 5 shows the resulting enforcement index for a representative state, Arizona. The solid line shows the enforcement index, which may be interpreted as the number of border patrol agents assigned to prevent unauthorized immigrants from entering Arizona. Enforcement in the Rio Grande

Valley, San Diego, and Tucson sectors are also plotted. As shown in the graph, the correlation between Arizona’s enforcement index and enforcement intensity in the Tucson sector is much higher than that for the other sectors. This is the result we would expect if enforcement in the Tucson sector is more relevant for potential migrants to Arizona than enforcement in the other sectors.

We close this section by presenting summary statistics in Table 2 on the panel of U.S. states used in the analysis. The mean Mexican immigrant share is (approximately) 2%, which is a mechanical result of the sample size of 50 states and the District of Columbia; we omit reporting shares of other population groups for this reason. The next several rows show average levels of various subpopulations (sample sizes vary because of state-year cells with zero shares, in accordance with the sample used in the regression analysis). The average state has 184,480 Mexican immigrants,

14 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch compared to 4.1 million natives. Levels of other subpopulations are mostly as expected, although our estimate of the unauthorized Mexican immigrant population implies that 34% of Mexican immigrants are unauthorized, which is low compared to Hanson’s (2006, p. 870) estimate of 56%.

The average level of the enforcement index is 0.21, indicating 210 border patrol agents assigned to prevent unauthorized immigration to an average state annually. An alternate enforcement index that replaces border patrol agents with apprehensions of unauthorized migrants in (2) shows 21,200 apprehensions intended for an average state per year. The ﬁnal rows of the table show border-sector speciﬁc enforcement, measured by number of agents. There is considerable variation across sectors, with San Diego, Tucson and El Paso assigned the largest numbers of agents.

4 Results

4.1 Main results

In estimating (4), we include in the vector of controls (X) unemployment rates, hourly wages,

(log) GDP per capita, (log) manufacturing output, (log) agricultural output, (log) construction output, (log) new housing permits, and an indicator for passage of any punitive legislation aimed at immigrants, all in first differences. Unemployment rates and hourly wages are specific to the subpopulation whose population shares are under analysis. We also include a constant and year

ﬁxed eﬀects. We cluster standard errors by state.

Before discussing results of estimating (4), we present in Table 3 the results of the first stage, in which we regress the first difference of the enforcement index on its second lag, with the same set of controls as described above. In column (1), the coefficient on the instrument is .073, indicating that every 1,000 border patrol agents assigned to a state two years ago corresponds to an increase of 73 agents in the past year.7 The coefficient is precisely estimated, with an F -statistic of 74.2.

In column (2) we restrict attention to the years 2000-2011, corresponding to the period of the

7For ease of exposition, the enforcement index based on border patrol agents is speciﬁed in absolute numbers of agents in Table 3, but in thousands in all other results.

15 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch

Census/ACS sample. The coeﬃcient falls slightly to .068, with an F -statistic of 59.

An alternate instrument that replaces border patrol agents with apprehensions of unauthorized migrants (in thousands) also produces strong first stage results. Column (3) shows the coefficient for the enforcement index based on apprehensions is 0.57, representing the additional agents assigned to a state for every 1,000 apprehensions two years ago. The coefficient using the Census/ACS sample in column (4) is very similar, and both have F -statistics greater than 25. We prefer the agent-based instrument for the second stage analysis, however, because it provides a stronger first stage.

Table 4 presents the main results from estimation of (4), with OLS results in Panel A and IV results in Panel B.8 Column (1) uses a state’s share of all Mexican immigrants located in the U.S. as the dependent variable. The OLS coeﬃcient of -.176 indicates that an increase of 1,000 border patrol agents assigned to a state is correlated with a 17.6% decrease in a state’s share of Mexican immigrants. In an average state with a 2% share, this would reduce the share to 1.65%. The corresponding IV coeﬃcient in Panel B is -.219, meaning that a 1-unit increase in the enforcement index leads to a 21.9% decrease in a state’s Mexican immigrant share. The larger magnitude of the

IV coefficient is as we would expect if OLS coefficients are upwardly biased because enforcement intensity responds to immigrant inflows. Both coefficients are statistically significant at 1%.9

In subsequent columns of Table 4 we focus on subpopulations of Mexican immigrants to look for diﬀerential responses to border enforcement. In column (2) we restrict attention to males aged

16-50 with a high school education or less, a group with a high propensity to migrate. The IV coeﬃcient is nearly 1.5 times both the corresponding OLS coeﬃcient and that for all Mexican

8First-stage F -statistics reported in Table 4 do not correspond exactly to those in Table 3, column (1) because estimation samples vary due to state-years with a zero population share, for which the log population share is undeﬁned. Cells with a zero share also explain the uneven sample sizes across columns. We check the sensitivity of results to exclusion of these observations in Table A2. 9To give a further sense of the magnitudes of our estimates, the average change in the enforcement index is 0.017, representing an annual increase of 17 border patrol agents assigned to a state. Multiplying this ﬁgure by our IV estimate of -.219 results in a predicted annual decline of 0.37% in an average state’s Mexican immigrant share. In the average state with a 2% Mexican immigrant share, this will result in a decline to 1.99% in one year, or a decline to 1.88% when compounded over the 17 years of our sample.

16 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch immigrants in column (1). The larger magnitude is as expected if this group is more likely to be affected by border enforcement. In column (3) we investigate the response of unauthorized immigrants. U.S. government surveys do not ask about immigrants’ legal status. Instead, we use state-level estimates of unauthorized immigrants from Warren and Warren (2013), multiplied by the proportion of immigrants who are Mexican (according to the state-year cell of the CPS panel) to obtain an estimate of a state’s share of unauthorized Mexican immigrants.10 The IV coefficient is -.324, significant at 1% and considerably larger than the coefficient for all Mexican immigrants, indicating a greater responsiveness of unauthorized Mexican immigrants to border enforcement, as we would expect.

Despite the lack of information about immigrant legal status in the data, data on U.S. citizenship can be used to identify a subgroup of immigrants with certain legal status. These immigrants are not at risk of deportation and therefore should not respond to border enforcement in the same manner as non-citizens. Splitting the sample of those born in Mexico into naturalized citizens and non-citizens in columns (4)-(5), we ﬁnd that naturalized citizens are not responsive to border enforcement when deciding where to reside in the U.S., but non-citizens are. The non-citizen response is of similar magnitude as the unauthorized immigrant group examined in column (3).

Mexican immigration to the U.S. is characterized by high rates of circular migration, with migrants cycling back and forth between countries with some regularity (Rendon and Cuecuecha

2010). For migrants currently at a U.S. destination, greater enforcement increases the cost of return migration to Mexico by making it more diﬃcult to engage in circular migration. This increases the incentives for migrants to remain at their U.S. destination when border enforcement tightens (Kossoudji 2002, Angelucci 2012). Although U.S. government surveys do not ask directly about circular migration, they do ask for a respondent’s migration status one year ago. Mexican immigrants who report being abroad last year were presumably residing in Mexico, and are likely re-entrants or newly arrived migrants to the U.S., compared to those who report residing in the

10Appendix B provides more detail on the methodology used by Warren and Warren (2013). These data end in 2010, leading to fewer observations than the main sample.

17 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch

U.S. the previous year. We split Mexican immigrants into groups by their migration status one year ago in columns (6)-(7). In column (6), the IV coeﬃcient for those residing abroad one year ago is nearly zero, while the coeﬃcients for those not abroad one year ago are similar to those for the full sample. The results are consistent with border enforcement leading to postponement of return migration to Mexico, rather than deterring re-entry or new migration to the U.S.

If migrants are responding to local shocks other than border enforcement, then they may switch locations within the U.S. rather than change their entry or exit decision. While our specification controls for many shocks at the state level, the data allow us to further test these responses by classifying Mexican immigrants as internal migrants if they resided in a different U.S. state one year ago, and a non-internal migrant otherwise. We expect border enforcement to exert a greater influence on non-internal migrants. The IV coefficient for non-internal migrants in column (9) is almost identical to that for the full sample in column (1). In column (8), however, the IV coefficient for internal migrants is positive but not statistically significant. These findings show that the effect of border enforcement on location choice is driven by movements across the border, not between U.S. states. This differential response helps alleviate concerns that the enforcement index is correlated with a more general, but unobserved, adverse environment for all Mexican immigrants at a location.

In Table 5 we repeat the speciﬁcation of (4) using additional population groups. In these regressions, we replace controls for the Mexican immigrant unemployment rate and hourly wage with those for the relevant subpopulation, but all other covariates are unchanged. In columns (1)-(2), we analyze shares of all non-Mexican immigrants and non-Mexican unauthorized immigrants, respectively, where the latter are constructed by multiplying the Warren and Warren (2013) estimates by the state’s proportion of immigrants who are non-Mexican. In both cases, the OLS and IV coef-

ﬁcients are statistically indistinguishable from zero, in contrast to our earlier ﬁndings for Mexican immigrants. The results are sensible because unauthorized immigrants from countries other than

Mexico are probably more likely to arrive by air, sea, or through the northern border.

Column (3) shows the response of natives to border enforcement. Although fear of deportation

18 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch should not lead natives to respond to border enforcement, they might nonetheless respond indirectly through the effect of border enforcement on the location decisions of other groups. The results show that this is the case, with the IV coefficient positive and significant. This result is consistent with natives engaging in wage arbitrage as immigrants relocate from high to low enforcement intensity states. The response is relatively mild, however: the IV coefficient of .037 implies that an increase of 1,000 border patrol agents assigned to a state increases the native population share by 3.7%, or from 2% to 2.07% in the average state.

In column (4) we examine the response of Puerto Ricans, who provide a useful falsification test for our main results because of their linguistic and cultural similarities with Mexicans and their U.S. citizenship. We find no statistically significant movements of Puerto Ricans in response to border enforcement, as might be expected. Column (5) shows the response of Central Americans, with the IV coefficient on the enforcement index of -.201 significant at 5%. This is an interesting result, suggesting that Central Americans respond to border enforcement in similar fashion as Mexicans, consistent with anecdotal evidence of relatively large flows of unauthorized Central Americans into the U.S. through Mexico and the southern U.S. border.

4.2 Robustness checks

In Section 3, we discussed the reasons we preferred the longer panel based on the CPS relative to the shorter Census/ACS panel. However, the Census/ACS panel provides larger sample sizes than CPS, and thus is a better source for the years over which the panels overlap. Table A1 shows results analogous to Table 1 using the Census/ACS panel, which covers the years 2000-2011. The results are quite similar to those from the CPS panel. In particular, all negative and statistically significant IV coefficients on the enforcement index from Table 1 are also negative and statistically significant when using Census/ACS data. The negative coefficient on naturalized citizens is now significant at the 5% level in column (4), suggesting that border enforcement influences location choices for Mexican immigrants beyond concerns about legal status. This effect would be consistent

19 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch with immigrant preferences to live with others from their home country (Bartel 1989, Munshi 2003).

In all results presented to this point, state-year observations with a zero population share were omitted from the analysis, because the log population share is undefined for these cells. We check whether including these observations leads to different results by adding one person to all state-year subpopulations and recalculating the population shares, so that the log share is defined for all cells.

The results, presented in Table A2, are similar to Table 1. Although some IV coefficients that are statistically significant in Table 1 lose significance when including all state-year cells, the signs and magnitudes are mutually consistent.11

4.3 Discussion: how much does border enforcement matter for location choice?

Given the robustness of our results, it would be instructive to determine the extent to which

U.S. border enforcement accounted for the spatial diffusion of Mexican immigrants during the sample period. To quantify the effect of border enforcement, we compare actual state shares of the Mexican immigrant population to those implied by our estimates under a counterfactual of no change in enforcement. To calculate these counterfactual population shares, we subtract our baseline estimate of the border enforcement effect (the IV coefficient reported in Table 4, column

[1], multiplied by observed changes in border enforcement during the sample period) from actual changes in population shares. Details of the calculation appear in Appendix C.

Table 6 presents results of this exercise. Columns (1)-(2) show each state’s observed share of the Mexican immigrant population at the beginning and end of the sample period. Column (3) shows the end-period share if border enforcement had not changed over the same period. Taking the ﬁrst state in the list, Alabama, as an example, we observe that between 1994 and 2011 its share

11Because our model stems from a multinomial logit formulation, it will be misspecified if the independence of irrelevant alternatives (IIA) is violated, for instance if nearby states are closer substitutes for a given destination than states farther away. To allow for this possibility, we run specifications with enforcement in nearby states as an additional control variable. In one version of this specification, we include the a population-weighted average enforcement index of neighboring states; in another, we include the average enforcement of all other states, weighted by the inverse distance between state centroids. Results, which are not shown but available upon request, are similar in magnitude to our main estimates, with the coefficients on the enforcement index estimated at -.200 and -.373, respectively, and significant at the 1% level.

20 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch of the Mexican immigrant population rose more than tenfold, from 0.05% to 0.51%. This change is indicative of the diﬀusion of Mexican immigrants to southeastern states. In column (3), we see that our estimates imply that if border enforcement had not changed since 1994, Alabama’s share would be only 0.26%. The corresponding 0.25 percentage point discrepancy reported in column (4) indicates that border enforcement played an important role in the increased presence of Mexican immigrants in Alabama during the sample period.

Similar insights appear throughout the table. Of particular note are our estimates for the southern border states. We find that Mexican immigrant shares in California and Texas would be considerably higher if border enforcement had remained static, by more than 8 percentage points in each case. Conversely, immigrant shares in Arizona and New Mexico would be lower, consistent with the Massey et al. (2002) hypothesis of enforcement in high-traffic areas of the border leading to increasing crossing and settlement in border areas with less historical traffic. In fact, our estimates imply that all states would have a lower (or unchanged) share of Mexican immigrants if enforcement had not changed, with the exceptions of California and Texas. The maps presented in Figure 6 help to visualize the results presented in the table. Panel (a) shows the empirical change in Mexican immigrant shares, while panel (b) presents our estimates from Table 6, column (4). The map shows that the Mexican immigrant population would not have diffused as extensively across the country if enforcement had remained unchanged.

Although the estimates in this section stem from an empirical specification derived from a theory of immigrant location choice, several caveats are in order. First, we ignore the effects of border enforcement on aggregate flows between Mexico and the United States, and focus only on the spatial distribution of immigrants across states. Second, the empirical specification embeds policy and economic variables, such as state-level legislation targeted to immigrants and conditions in industries with large concentrations of immigrant workers, that would also likely change in response to any changes in border enforcement. Nonetheless, we think this exercise is instructive to gauge the relative importance of border enforcement in the diffusion of Mexican immigrants to

21 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch new U.S. destinations in the past two decades.

5 Conclusion

To our knowledge, no causal analysis has been conducted on the impact of border enforcement on immigrant location choice. The inﬂuential Massey et al. (2002) hypothesis is diﬃcult to evaluate because of data limitations, the presence of competing factors in location choice, and in particular the endogeneity of border enforcement. We attempt to overcome this latter problem by proposing an instrumental variables approach. We construct an index of enforcement intensity that varies across time and place, that, on a lagged basis, we argue provides exogenous variation. Our strategy controls for a host of location choice factors including state economic conditions and deterrent state immigration policy.

We find evidence that increases in border enforcement decrease the share of Mexican immigrants, on the order of a 21.9% decrease in share for every 1,000 additional border patrol officers. These results are stable across subgroups, with slightly stronger effects for likely or estimated unauthorized population shares, and null effects for immigrants less likely to be border crossers. Our estimates imply that California and Texas lost shares of Mexican immigrants to other parts of the country due to border enforcement, consistent with the hypothesis in Massey et al. (2002).

Understanding the causal effect of border enforcement efforts on immigration location choice has implications for policy at various levels of government. Major efforts are devoted to controlling who enters the U.S. across its southern border, with arguably great success. U.S. Secretary of

Homeland Security Janet Napolitano recently testified that the Southwest border has “never been stronger,” with illegal crossings on the decline (Dinan 2013). However, border policy is presumed to have less (if any) control over where immigrants settle once they cross the border. These results tell a different story—we quantify an economically sizeable effect of border enforcement on destination choice. As such, the results may be useful to policymakers at the federal and state level, concerned with the size and nature of immigration flows into the U.S. and into individual states.

22 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch

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Dinan, Stephen, “Napolitano approves Senates border security plan,” The Washingtion Times, June 2013.

Gathmann, Christina, “Eﬀects of Enforcement on Illegal Markets: Evidence from Migrant Smug- gling along the Southwestern Border,” Journal of Public Economics, October 2008, 92 (10-11), 1926–1941.

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, Raymond Robertson, and Antonio Spilimbergo, “Does Border Enforcement Protect U.S. Workers from Illegal Immigration?,” Review of Economics and Statistics, February 2002, 84 (1), 73–92.

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, “Playing Cat and Mouse at the U.S.-Mexican Border,” in Klaus F. Zimmermann and Thomas Bauer, eds., The economics of migration. Volume 1. The migration decision and immigration policy, Elgar Reference Collection. International Library of Critical Writings in Economics, vol. 151., 2002, pp. 384–405.

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Massey, Douglas S., Jorge. Durand, and Nolan J. Malone, Beyond smoke and mirrors: Mexican immigration in an era of economic integration, New York: Russell Sage Foundation, 2002.

Munshi, Kaivan, “Networks in the Modern Economy: Mexican Migrants in the U. S. Labor Market,” The Quarterly Journal of Economics, May 2003, 118 (2).

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, “The effect of US border enforcement on the crossing behavior of Mexican migrants,” Crossing the Border: Research from the Mexican Migration Project, 2004, p. 281298. and Madeline Zavodny, “Self-Selection among Undocumented Immigrants from Mexico,” Journal of Development Economics, October 2005, 78 (1), 215–240. Passel, Jeffrey S. and DVera Cohn, “U.S. Unauthorized Immigration Flows Are Down Sharply Since Mid-Decade,” 2010. Pena, Anita Alves, “Locational Choices of the Legal and Illegal: The Case of Mexican Agricultural Workers in the U.S.1,” International Migration Review, 2009, 43 (4), 850880. Pugatch, Todd and Dean Yang, “The Impact of Mexican Immigration on US Natives: Evidence from Migrant Flows Driven by Rainfall Shocks,” Mimeo. University of Michigan., 2011. Rendon, Silvio and Alfredo Cuecuecha, “International Job Search: Mexicans In and Out of the US,” Review of Economics of the Household, March 2010, 8 (1), 53–82. Reyes, Belinda, Hans Johnson, and Richard Van Swearingen, “Holding the Line? The Effect of Recent Border Build-up on Unauthorized Immigration,” Public Policy Institute of California Report, 2002. Roberts, Bryan, Gordon H. Hanson, Derekh Cornwell, and Scott Borger, “An Analysis of Migrant Smuggling Costs along the Southwest Border,” DHS Office of Immigration Statistics Working Paper, November 2010. Scanlon, Dennis P., Michael Chernew, Catherine McLaughlin, and Gary Solon, “The impact of health plan report cards on managed care enrollment,” Journal of Health Economics, January 2002, 21 (1), 19–41. Simanski, John and Lesley Sapp, “Immigration Enforcement Actions: 2012,” Technical Report, Department of Homeland Security Office of Immigration Statistics December 2013. Singer, Audrey, “The Rise of New Immigrant Gateways,” 2004. Sjaastad, Larry A., “The Costs and Returns of Human Migration,” Journal of Political Economy, October 1962, 70 (5). Sorensen, Todd and Carmen Carrion-Flores, “The Effects of Border Enforcement on Migrants’ Border Crossing Choices: Diversion or Deterrence?,” 2007. Warren, Robert and John Robert Warren, “Unauthorized Immigration to the United States: An- nual Estimates and Components of Change, by State, 1990 to 2010,” International Migration Review, 2013, 47 (2), 296329. Ziliak, James P., “Efficient Estimation With Panel Data When Instruments Are Predetermined: An Empirical Comparison of Moment-Condition Estimators,” Journal of Business & Economic Statistics, 1997, 15 (4), 419–431.

25 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch

A Border enforcement and location choice model

We adapt the pioneering work of Sjaastad (1962) and Borjas (1987), and assume that a prospective migrant from Mexico will relocate to the United States if his utility net of migration costs in the U.S. exceeds his utility in Mexico, such that the following inequality holds:12

uUS − c(e, d) > uMX (6) where uUS is utility in the U.S., uMX is utility in Mexico, and c(·) is the cost of migrating to the U.S. from Mexico. Assuming the migrant cannot cross the border legally, the cost is comprised of border enforcement e and the distance d to the choice of location, and is increasing in each argument.13

The model is easily extended to multiple potential destinations in the U.S. Initially assume that there is a unique mapping between border crossing locations and destinations, so that migrants crossing successfully in a particular location are constrained to locate in the associated U.S. destination. The migrant will choose U.S. destination k over U.S. destination l if the following inequality holds (and the left-hand side is non-negative):

uk − uMX − c(ek, dk) > ul − uMX − c(el, dl) (7) where enforcement is made destination-speciﬁc in the sense developed in the paper. It follows immediately that changes in enforcement at particular crossing points will alter the relative costs associated with U.S. destinations, leading marginal migrants to change their locations.

The eﬀect operates through two channels, as shown in Sorensen and Carrion-Flores (2007): deterrence from any migration to the U.S., and diversion of some migrants from one crossing location (and hence destination) to another. Both eﬀects will increase the share of migrants locating at the destination with decreased relative enforcement.

Now consider the more realistic setting in which a potential migrant to a destination may choose among multiple crossing locations. Crossing locations vary in their associated smuggling fees and probabilities of apprehension. For each destination, crossing locations also vary in their distance cost, where “distance” is deﬁned broadly to include direct travel costs, ease of travel through pre-existing networks associated with the destination, foregone earnings during travel time, and probability of apprehension in the interior. For each U.S. destination k, the value of migration is:

s Vk = uk − min[c(es, d )] (8) s k s where s indexes border crossing sector and dk is the distance cost from crossing s to destination 12We thank Scott Borger for discussions that helped develop this section. 13Enforcement aﬀects smuggling fees f and the probability of apprehension p. Although not all illegal migrants choose to pay for smuggling services, in general they will face a trade-oﬀ between paying for smuggling or facing a higher probability of apprehension, as in Gathmann (2008). We abstract from this decision and assume that the migrant chooses the cost-minimizing combination of (f, p), summarized as e.

26 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch

k. A migrant will choose destination k if Vk > uMX and Vk > Vl for all l 6= k. As in the case of a single crossing location per destination, with multiple crossing locations changes in enforcement at border sector s can lead to changes in migrant destinations. Because the cost-minimizing crossing location can vary across destinations, crossing sector-speciﬁc changes in migration costs can alter a migrant’s ranking of destinations. For instance, suppose San-Diego/Tijuana is the preferred crossing location for migrants to California (CA). Increased enforcement at this sector may decrease VCA suﬃciently to switch a migrant’s preferred destination from California to an alternate destination, such as Arizona or New Mexico.

Moreover, if the shape of the value function varies in the population of potential migrants, as is likely, then the composition of migrants may also change. Relatively risk-averse migrants may be deterred from attempting to locate in traditional U.S. destinations as enforcement increases, while more risk-tolerant migrants will be induced to settle in non-traditional destinations where the economic and social environment is less familiar.

Specifying the right-hand side of (8) as a linear function of border enforcement, observable characteristics, and an idiosyncratic error, and adding individual and time subscripts i and t, leads to (1), our point of departure in Section 2.

B Detail on data sources

Population data sources used to construct outcome variables are the U.S. Current Population Sur- vey (CPS) 1994-2011, U.S. Census 2000, and American Community Survey (ACS) 2001-2011. In each case, microdata maintained by the Minnesota Population Center’s Integrated Public Use Mi- crodata Series (IPUMS) are aggregated by U.S. state (including the District of Columbia) and year. The 2000 Census are a 5% random sample of the full Census. CPS data for 2011 are from March only, as this was the only month available at the time the analysis was conducted; all other years include CPS data from all months.

Estimates of the unauthorized immigrant population by state-year are from Warren and Warren (2013). Warren and Warren (2013) use a residual method to estimate unauthorized population by state for each year from 1990 to 2010. This method, common to the migration and demography literature, compares the total number of immigrants based on survey data (in this case, ACS and Decennial Census) to the total number of authorized immigrants based on administrative information (DHS records of legal permanent and non-immigrant residents). The Warren and War- ren (2013) estimates are the most detailed state-year estimates of unauthorized immigrants to date.

In constructing the weights ω used to create the enforcement index in (2), we use the Northern Border Migration Survey (EMIF) modules on migrants to the U.S. and voluntary returnees from the U.S. to Mexico. Because the weights span those whose last trip to the U.S. was between 1983- 1993 and we drop any respondents whose last trip was more than 10 years prior to the interview date, we use EMIF waves conducted between 1993-2003.

27 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch

Control variables used in the analysis come from various sources. Unemployment rates, hourly wages, and annual income come from the IPUMS versions of the U.S. Current Population Survey 1994-2011, U.S. Census 2000, and American Community Survey 2001-2011, in concordance with the dataset used in the analysis. Data on gross domestic product (total, agricultural, and manufacturing) are from the U.S. Bureau of Economic Analysis. Data on new housing permits are from the U.S. Census Bureau Building Permits Survey. Data on state legislation regarding immigrants are from the National Conference of State Legislatures Immigration Policy Project. Since 2005, the NCSL has collected information on laws and resolutions enacted by state legislatures to address immigrant-related issues. NCSL uses a comprehensive search to identify all immigrant-related laws, both deterrent and attractive, as well as those signed or vetoed by the governor. Our policy control variables account for the passage of any deterrent laws, signed by the governor and related only to employment and enforcement. Similar laws have been shown to have signiﬁcant impacts on the location choice of immigrants, as in (Bohn et al. 2011). Additional laws, for example those constricting immigrant access to public services, may also be relevant to immigrant location choice.

C Calculation of counterfactual population shares

We use our estimates of the eﬀect of border enforcement to calculate state shares of Mexican immigrants that would prevail if enforcement had not changed over the sample period. To do so, we subtract our estimated border enforcement eﬀect from each state’s (log) population share over the sample period:

T X ˆ log(SkT\) − log(Sk0) = ∆ log(Skt) − θ∆ekt (9) t=0 where t = 0 and t = T denote the beginning and end of the sample, θˆ is the estimated IV coeﬃcient on the enforcement index, and all other notation is as in (5). We solve for SdkT by rewriting the left-hand side of (9) and performing some algebraic manipulations:

" # \SkT exp log × Sk0 = SdkT (10) Sk0

Finally, we normalize SdkT so that the shares sum to 1.

28 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch

Table 1: Shares of Mexican Immigrants

Year Share in top 5 states Share in top 10 states Share in California and Texas 1980 0.92 0.96 0.80 1990 0.90 0.95 0.79 2000 0.76 0.86 0.63 2010 0.71 0.82 0.58

Table shows shares of Mexican immigrants in state groupings by year. Sources: U.S. Census for 1980-2000, American Community Survey for 2010.

29 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch

Table 2: Summary statistics

Variable N Mean S.D. Mexican immigrants share 840 0.02 0.07 all 840 194,931 631,422 males 16-50 810 73,869 217,852 unauthorized 790 65,322 203,200 naturalized citizen 790 47,152 164,748 not naturalized citizen 816 154,978 481,895 abroad last year 220 1,674 3,951 not abroad last year 840 194,396 630,026 internal migrant 280 834 2,058 not internal migrant 839 194,814 631,187 Other population groups non-Mexican immigrant 867 466,837 941,395 non-Mexican unauthorized 816 126,225 255,302 natives 867 4,876,839 4,898,778 Puerto Rican 743 29,911 70,619 Central American 836 47,433 121,534 Enforcement index (agents) 840 0.21 0.75 index (apprehensions) 840 21.2 76.9 weights (state-sector pairs) 423 0.02 0.10 border patrol agents (sector-years) all sector-years 153 1,177 810 Rio Grande Valley (TX) 17 1,491 615 Laredo (TX) 17 1,035 496 Del Rio (TX) 17 963 421 Big Bend (TX) 17 298 194 El Paso (TX & NM) 17 1,529 747 Tucson (AZ) 17 2,048 1,065 Yuma (AZ) 17 492 303 El Centro (CA) 17 682 337 San Diego (CA) 17 2,058 365

Table shows summary statistics from U.S. state-years 1995-2011 (unless otherwise indicated). Population data from Current Population Survey. Unauthorized Mexican/non-Mexican immigrants are estimates from Warren and Warren (2013), multiplied by the proportion of Mexican/non-Mexican immigrants in the state-year cell. Enforcement index = P s Pr(US destination|cross at border sector s) × enforcement at sector s, where enforcement is thousands of border patrol agents or apprehensions of unauthorized migrants. Index may be interpreted as amount of enforcement dedicated to preventing arrival of unauthorized migrants at destination. Enforcement weights (crossing probabilities) calculated from EMIF crossings 1983-1993. Border patrol agents and apprehensions from Department of Homeland Security.

30 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch

Table 3: First Stage

enforcement index, ﬁrst diﬀerence (1) (2) (3) (4) agent index, t − 2 0.073 0.068 (0.009)*** (0.009)*** apprehension index, t − 2 0.57 0.60 (0.095)*** (0.120)*** Observations 863 612 914 612 R-squared 0.38 0.37 0.39 0.33 1st stage F -statistic 74.2 59.0 36.3 25.4 data source CPS ACS CPS ACS

Table shows regressions of first difference of enforcement index on its second lag. Sample is U.S. state-years (including D.C.) from Current Population Survey, 1995-2011 in column (1), U.S. Census 2000 and American Community Survey 2001-2011 in column P (2). Enforcement index = s Pr(US destination|cross at border sector s) × enforcement at sector s. Index may be interpreted as amount of enforcement dedicated to preventing arrival of unauthorized migrants at destination, where enforcement is number of border patrol agents or apprehensions of unauthorized migrants (thousands), as indicated. Crossing probabilities calculated from EMIF crossings 1983-1993. Border patrol agents from Department of Homeland Security. All regressions include year fixed effects and the following controls (in first differences): Mexican immigrant unemployment rate, Mexican immigrant hourly wage, log GDP per capita, log agricultural GDP, log manufacturing GDP, log construction GDP, log new housing permits, and a dummy for passage of any punitive immigration legislation. Robust standard errors in parenthesis, clustered by state. * significant at 10%; ** significant at 5%; *** significant at 1%

31 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch no yes internal migrant no abroad last year yes no yes naturalized citizen , where enforcement is thousands of border patrol agents. Index may be inter- s unauthorized enforcement at sector × ) s HS or less males 16-50 Table 4: Mexican immigrant population shares and border enforcement all (1) (2) (3) (4) (5) (6) (7) (8) (9) (0.058)*** (0.057)*** (0.057)***(0.075)*** (0.050) (0.078)*** (0.056)*** (0.272) (0.075)*** (0.058)*** (0.350) (0.066) (0.058)*** (0.090)*** (0.316) (0.074)*** (0.292) (0.073)*** cross at border sector | -stat 75.6 75.6 80.8 75.4 75.7 49.4 75.6 53.8 75.7 F Pr(US destination s Panel A: OLS enforcement index -0.176Panel B: IV enforcement index -0.204 -0.219 -0.200 -0.316 -0.075 -0.324 -0.209 -0.047 -0.3 -0.304 -0.175 -0.003 -0.571 -0.214 -0.175 0.205 -0.218 R-squaredObservations1st 0.04 stage 839 0.03 809 0.03 0.02 789 0.03 789 0.07 815 0.04 220 0.12 839 0.04 280 838 Table showsCurrent regressionsP Population of Survey, log 1995-2011. populationpreted as share amount Populationof of on enforcement share enforcement index. enforcement dedicatedUnauthorized is to index, Mexican Crossing preventing state’s immigrants probabilities arrivalgrants calculated in calculated share of who by from are first unauthorized multiplying of Mexicanunemployment EMIF migrants unauthorized differences. rate, in at immigrant Mexican crossings the Mexican estimate destination. 1983-1993. state-year immigrant immigrantshousing of cell. hourly permits, Instrument Warren Border within Sample wage, and and All in patrol log aat Warren regressions each IV is GDP agents dummy 10%; (2013) include specifications for per ** from by category. year U.S. passage significant is capita, the Department fixed at of log second proportion effects of state-years 5%; any agricultural and lag of *** Homeland punitive Enforcement GDP, (including the immigration significant immi- Security. log following at legislation. index manufacturing D.C.) controls 1% Robust GDP, (in = log standard from 1st construction errors differences): in GDP, log parenthesis, Mexican new clustered immigrant by state. * significant

32 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch × ) s cross at border sector | Central American Pr(US destination s Rican P Puerto native unauthorized non-Mexican (1) (2) (3) (4) (5) (0.030) (0.017)(0.044) (0.014) (0.068) (0.053) (0.070) (0.017)** (0.105) (0.084)** immigrant Table 5: Population shares and border enforcement Panel A: OLS enforcement indexR-squared 0.017Panel B: IV enforcement index 0.006Observations -0.031st stage 0.04 F-statistic 0.017 75.6 -0.027 863 0.004 0.03 -0.095 0.037 80.9 812 0.05 0.017 -0.201 75.2 0.03 863 75.5 0.04 739 75.7 832 , where enforcement is thousands of border patrol agents. Index may be interpreted as amount of enforcement dedicated to preventing s Table shows regressions of logSurvey, population 1995-2011. share on Population enforcement share index,enforcement is in at state’s first sector differences. share withinarrival Sample each is of U.S. category unauthorized state-years indicated. migrants (includingEMIF D.C.) Enforcement at crossings from index destination. Current 1983-1993. = Population (2013), Instrument Border in multiplied patrol by IV agents the specificationscontrols from proportion is (in Department of second of 1st immigrants lagmanufacturing Homeland who of differences): GDP, Security. log are enforcement construction non-Mexican index. Unauthorized unemploymenterrors GDP, in in immigrants rate Crossing log the parenthesis, are probabilities new of state-year clustered estimates calculated housing cell. by indicated of from permits, state. Warren All group, and * and regressions a significant hourly Warren include at dummy wage year 10%; for fixed ** of passage effects significant of indicated and at any 5%; the group, punitive *** following immigration log significant legislation. at GDP 1% Robust per standard capita, log agricultural GDP, log

33 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch

Table 6: State shares of Mexican immigrants, 1994-2011

State observed counterfactual change 1994 2011 2011 (1) (2) (3) (3)-(2) Alabama 0.05% 0.51% 0.26% -0.25 Alaska 0.03% 0.04% 0.02% -0.02 Arizona 4.50% 5.03% 4.72% -0.30 Arkansas 0.15% 0.29% 0.15% -0.14 California 54.02% 38.16% 46.40% 8.24 Colorado 0.57% 1.78% 1.02% -0.76 Connecticut 0.00% 0.18% 0.12% -0.05 Delaware 0.06% 0.19% 0.10% -0.09 District of Columbia 0.02% 0.06% 0.03% -0.03 Florida 2.17% 1.95% 1.09% -0.86 Georgia 1.28% 1.95% 1.02% -0.92 Hawaii 0.01% 0.08% 0.04% -0.04 Idaho 0.36% 0.57% 0.30% -0.27 Illinois 6.53% 5.56% 3.02% -2.54 Indiana 0.09% 0.82% 0.42% -0.40 Iowa 0.11% 0.54% 0.28% -0.26 Kansas 0.12% 0.63% 0.33% -0.30 Kentucky 0.03% 0.32% 0.16% -0.15 Louisiana 0.07% 0.21% 0.11% -0.10 Maine 0.00% 0.01% 0.00% -0.01 Maryland 0.09% 0.43% 0.22% -0.21 Massachusetts 0.17% 0.05% 0.03% -0.02 Michigan 0.12% 0.87% 0.45% -0.42 Minnesota 0.28% 0.48% 0.25% -0.23 Mississippi 0.03% 0.12% 0.06% -0.06 Missouri 0.11% 0.25% 0.13% -0.12 Montana 0.01% 0.03% 0.02% -0.01 Nebraska 0.13% 0.54% 0.28% -0.26 Nevada 1.14% 1.93% 1.02% -0.91 New Hampshire 0.00% 0.00% 0.00% 0.00 New Jersey 0.37% 1.80% 0.92% -0.88 New Mexico 1.08% 0.99% 0.56% -0.43 New York 1.33% 1.84% 0.95% -0.89 North Carolina 0.53% 2.03% 1.09% -0.94 North Dakota 0.01% 0.00% 0.00% 0.00 Ohio 0.11% 0.34% 0.18% -0.17 Oklahoma 0.56% 0.44% 0.23% -0.21 Oregon 1.09% 0.74% 0.39% -0.35 Pennsylvania 0.19% 0.38% 0.20% -0.19 Rhode Island 0.02% 0.04% 0.02% -0.02 South Carolina 0.06% 0.54% 0.28% -0.26 South Dakota 0.00% 0.03% 0.01% -0.01 Tennessee 0.03% 0.65% 0.34% -0.32 Texas 20.85% 22.45% 30.63% 8.17 Utah 0.32% 0.64% 0.33% -0.31 Vermont 0.00% 0.00% 0.00% 0.00 Virginia 0.12% 0.85% 0.44% -0.41 Washington 0.47% 1.84% 0.97% -0.88 West Virginia 0.00% 0.01% 0.00% -0.01 Wisconsin 0.56% 0.79% 0.41% -0.38 Wyoming 0.05% 0.05% 0.03% -0.02

Table shows state shares of Mexican immigrants in 1994, 2011, and 2011 under counterfactual in which border enforcement did not change, in columns (1)-(3), respectively. Final column shows percentage-point change in state share due to enforcement, found by subtracting column (3) from column (2). Column (3) found by using estimated IV coefficient on enforcement index from Table 4, column (1) to determine predicted change in population share in each state due to changes in enforcement. This change is then used to predict each state’s population share in34 2011 as though no change in enforcement occurred. Details in Appendix C. Data source: CPS, 1994-2011. U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch no yes internal migrant no abroad last year yes no yes naturalized citizen , where enforcement is thousands of border patrol agents. Index may be interpreted s unauthorized enforcement at sector × ) s HS or less males 16-50 all (1) (2) (3) (4) (5) (6) (7) (8) (9) (0.061) (0.037) (0.056) (0.049) (0.053) (0.077) (0.059) (0.094) (0.060) (0.083)*** (0.075)** (0.081)** (0.062)** (0.074)*** (0.193) (0.079)*** (0.160) (0.086)*** cross at border sector | Table A1: Mexican immigrant population shares and border enforcement (Census/ACS) -stat 74.8 74.8 98.6 74.5 74.9 90.5 74.8 91.6 74.8 F Pr(US destination s R-squared 0.08 0.17 0.08 0.07 0.09 0.08 0.07 0.11 0.09 Panel A: OLS enforcement index -0.083Panel B: IV enforcement index -0.005 -0.222 -0.072 -0.191 -0.024 -0.205 -0.02 -0.125 -0.028 -0.195 -0.08 -0.051 0.145 -0.225 -0.087 0.126 -0.224 Observations1st stage 557 547 506 550 552 396 557 423 557 Table shows regressions of2000, logP American population Community share Survey on 2001-2011. enforcement index, Population in share first is differences. state’s Sample share is of U.S. state-years Mexican (including immigrants D.C.) within from each U.S. category. Census Enforcement index = as amount of enforcement dedicatedindex. to preventing Crossing arrival probabilities of calculated unauthorizedimmigrants from migrants EMIF calculated at crossings destination. by 1983-1993. multiplying Instrumentthe Border in unauthorized patrol state-year IV immigrant agents cell. specifications from estimate is Department All ofimmigrant second of regressions Homeland lag hourly Warren Security. of include and wage, enforcement Unauthorized year Warren log Mexican for (2013) fixed GDP passage by effects per of the and capita, any proportion thesignificant log punitive following of at agricultural immigration controls immigrants 1% GDP, legislation. (in who log 1st Robust are manufacturing differences): standard GDP, Mexican errors log Mexican in in construction immigrant parenthesis, GDP, unemployment clustered log rate, by new Mexican state. housing permits, * and significant at a 10%; dummy ** significant at 5%; ***

35 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch no , where enforcement s yes internal migrant no enforcement at sector × ) s abroad last year yes no cross at border sector | yes naturalized citizen Pr(US destination s P unauthorized HS or less males 16-50 all (1) (2) (3) (4) (5) (6) (7) (8) (9) (0.105)** (0.157) (0.083)*** (0.092) (0.142)* (0.777) (0.104)** (0.911) (0.136) (0.058)*** (0.080)** (0.058)*** (0.090) (0.098)* (0.475) (0.058)*** (0.841) (0.063)*** Table A2: Mexican immigrant population shares and border enforcement (all cells) -stat 75.6 75.6 80.9 75.6 75.6 75.6 75.6 75.6 75.6 F R-squared 0.05 0.04 0.03 0.01 0.06 0.16 0.05 0.14 0.05 Panel A: OLS enforcement index -0.18Panel B: IV enforcement index -0.208Observations -0.2451st stage -0.200 -0.242 863 -0.139 -0.375 -0.175 863 0.262 -0.1 -0.179 -0.259 812 -0.846 0.345 -0.174 -0.24 863 -0.063 863 -0.167 863 863 863 863 Table shows regressions of logSurvey, population 1995-2011. share on enforcement Population index,zero share in population first is differences. share state’s Sample is share is well-defined. U.S. of state-years Mexican (including Enforcement D.C.) immigrants index from within Current = Population each category. One person added to all state-year cells so that log of is thousands ofdestination. border Instrument patrol in agents.patrol IV agents specifications Index from isWarren may Department second and of be lag Warren Homeland of interpretedfollowing (2013) Security. enforcement as controls index. by (in amount Unauthorized the 1st Crossing of Mexicanlog differences): proportion manufacturing probabilities immigrants enforcement GDP, Mexican calculated of log calculated dedicated immigrant from constructionerrors by immigrants unemployment to GDP, EMIF in rate, log multiplying who preventing crossings parenthesis, Mexican new unauthorized are arrival clustered housing immigrant 1983-1993. immigrant permits, by hourly of Mexican Border estimate and state. wage, unauthorized in a log of * dummy migrants GDP the significant for per at at state-year passage capita, of 10%; cell. log any ** punitive agricultural significant immigration All GDP, at legislation. 5%; regressions Robust *** standard include significant year at 1% fixed effects and the

36 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch

Figure 1: Mexican immigrant diﬀusion

Figure 2: Mexican immigrant diﬀusion and border enforcement

37 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch

Figure 3: Mexican migrant enforcement and crossing patterns

(a)

(b)

38 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch

Figure 4: Mexican migrant crossing patterns

(a) (b)

(c)

39 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch

Figure 5: Enforcement index

Figure 6: Change in state shares of Mexican immigrants, observed and counterfactual

(a) (b)

40 U.S. Border Enforcement and Mexican Immigrant Location Choice Bohn and Pugatch

Figure A1: Mexican immigrant population, by data source

Figure A2: Border patrol agents and linewatch hours