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Slum Upgrading and Long-run Urban Development: Evidence from Indonesia

Mariaflavia Harari and Maisy Wong
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Maisy Wong: University of Pennsylvania

No 367, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: The United Nations estimates that a quarter of the world’s urban population lives in slums. This paper sheds light on how a developing country city grows out of informality, through the lens of one of the largest slum upgrading programs in the world. The 1969-1984 Kampung Improvement Program (KIP) provided basic public goods in slums, covering 5 million people and 25% of the city of Jakarta, Indonesia. We assemble a granular database with program boundaries, historical maps, current land values, building heights, measures of land fragmentation, and a novel quality index of informal settlements based on Google Street View and field photos. Our research design compares KIP areas with historical slums that were never treated. Our findings are similar using a boundary discontinuity design. KIP areas today have 12% lower land values and buildings with 1.6 fewer floors on average, implying aggregate impacts of US$11 billion. Greater land fragmentation in KIP areas points towards the importance of land assembly costs as a barrier to formalization. These long-term costs need to be weighed against the benefits of the program. Overall, our findings suggest slum upgrading may be more cost effective for cities in early stages of urban development.

Date: 2018
New Economics Papers: this item is included in nep-his, nep-iue, nep-sea and nep-ure
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