Land policy in developing country cities places significant restrictions on formal sector developers but often fails to reign in informal development. To what extent does this pattern reduce city efficiency, and how are the effects shared between the rich and poor? We address these questions in three steps. First, we exploit a unique natural experiment in Mumbai that led 15% of central city land occupied by the city’s defunct textile mills to come onto the market for redevelopment in the 2000s. Second, we use a “deep learning” approach to measure slums from satellite images, and combine this with administrative sources to construct a uniquely spatially disaggregated dataset spanning the period. Third, we develop a quantitative general equilibrium model of a city featuring formal and informal housing supply to guide our empirical analysis. We document a large increase in the supply of formal construction on mill sites, and find substantial spillovers on nearby locations that led slums to redevelop into formal housing. Our findings suggest that land policy can reduce the efficiency of developing country cities by misallocating land away from its optimal use, but policies that promote formal housing supply may have unintended consequences for equity by reducing the stock of relatively affordable housing in slums.
To what extent are causal effects estimated in one region or time period informative about another region or time? In this paper, I derive bounds on the average causal effect in a context of interest using experimental evidence from another context. I use differences in outcome distributions for individuals with the same characteristics and treatment status in the original study and the context of interest to learn about unobserved differences across contexts. Greater differences in outcome distributions generate wider bounds. Empirically, I explore using experimental results on the return to cash transfers to male microentrepreneurs in one Mexican city in 2006 to predict the returns among male microentrepreneurs in urban Mexico in 2012. I show that existing methods would lead us to be overconfident in extrapolating from the small experiment to all of urban Mexico in 2012. Using data from a pair of remedial education experiments carried out in urban India, I show that the methods suggested in this paper are able to recover average causal effects in one city using results from the other where existing methods are unsuccessful.
Indian Labor Regulations and the Cost of Corruption: Evidence from the Firm Size Distribution
(with Amrit Amirapu)
Revised and resubmitted to the Review of Economics and Statistics
In this paper, we estimate the costs associated with a suite of labor regulations in India whose components have gone largely unstudied in developing countries. We take advantage of the fact that these regulations only apply to firms above a size threshold. Using distortions in the firm size distribution at the threshold together with a structural model of firm size choice, we estimate that the regulations increase firms’ unit labor costs by 35%. We document a robust positive association between regulatory costs and exposure to corruption, which may explain why regulations appear to be so costly in developing countries.
In this paper we consider the possibility that resource misallocation can occur not only across firms but also within firms across products. The paper includes a model which contributes to our theoretical understanding of this question as well as empirical results which suggest that misallocation within firms may be an important source of inefficiency. We model firms as making entry and product mix decisions under technological constraints and in the presence of regulations that cause product market distortions. The technological constraints we consider force firms to choose a product specialization or “core competency” which makes it costly to change product scope. We then use evidence from an Indian policy experiment to test aspects of the model and observe the various dimensions along which firms respond. The policy experiment we consider is the dismantling of the Small Scale Reservation Laws, which mandated that firms producing particular goods maintain less than a specified level of capital stock (about $1 million today). Starting in 1997 and continuing gradually over the next decade and a half, nearly all reserved goods were dereserved. Our analysis of dereservation shows that most of the policy response occurred among new firms entering the dereserved product space, rather than old firms adding new products, suggesting the presence of significant frictions along the within firm dimension.
Selected work in progress
Combining Experimental and Observational Studies in Meta-Analysis: Leveraging Experimental Structures to Eliminate Selection Bias
(with Rachael Meager)