The consequences of financial frictions on urbanization

Les conséquences des frictions financières sur l'urbanisation

David Gomtsyan
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David Gomtsyan: CERDI - Centre d'Études et de Recherches sur le Développement International - IRD - Institut de Recherche pour le Développement - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne

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Abstract: Weak financial institutions may affect developing countries due to slowing the much-needed construction process of residential housing. Using novel data collected from Nairobi, I document considerable variation in the construction duration of new residential buildings, with about 40% of buildings started in 2009 still unfinished in 2018. To understand the role of financial development in cities and urbanization, I develop a model with financial frictions in which households construct individual housing units. Quantitative exercises show that improvements in credit provision can substantially speed up the expansion of the housing stock and increase the city's density by enabling the construction of taller buildings.

Keywords: Urban growth; Housing investment; Financial frictions; Croissance urbaine; Investissement résidentiel; Frictions financières (search for similar items in EconPapers)
Date: 2024-03-25
New Economics Papers: this item is included in nep-fdg and nep-ure
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Published in 2024

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