The Economics of Slums in the Developing World

U rban populations have skyrocketed globally and today represent more than half of the world’s population. In some parts of the developing world, this growth has more-than-proportionately involved rural migration to informal settlements in and around cities, known more commonly as “slums”— densely populated urban areas characterized by poor-quality housing, a lack of adequate living space and public services, and accommodating large numbers of informal residents with generally insecure tenure. Worldwide, at least 860 million people are now living in slums, and the number of slum dwellers grew by six million each year from 2000 to 2010 (UN-Habitat 2012a). In sub-Saharan Africa, slum populations are growing at 4.5 percent per annum, a rate at which populations double every 15 years. The global expansion of urban slums poses questions for economic research, as well as problems for policymakers. Some economists (Frankenhoff 1967; Turner 1969; World Bank 2009; Glaeser 2011) have suggested a “modernization” theory of