Determinants of Slum Formation: The Role of Local Politics and Policies

One-third of the developing world’s population lives in urban slums and the absolute number of slum residents grew from 650 million in 1990 to 863 million in 2012. Although negative impacts of slum living conditions on several dimensions of slum residents’ lives are well documented, much less research exists on why slums emerge and grow in the first place. This paper provides novel evidence on the effect of local political conditions and slum policies on slum growth. Using a regression discontinuity design in close municipal elections in Brazil, I show that victories by a center-left, pro-poor party led to both more slum upgrading policies and a higher share of slum housing. I further show evidence indicating that the pro-slum incentive effect from slum upgrading policies was the main mechanism behind this party’s effect on slum growth. By highlighting the relevance of local institutional conditions for understanding where slums are more likely to grow, these findings innovate over traditional explanations based on the role of rural-urban migration and rapid urban economic growth. This paper’s evidence on the potential incentive effect of slum upgrading policies on slum growth does not imply that slums upgrading efforts should stop. Given the solid evidence on the positive impacts of slum upgrading programs on the lives of the poor, these programs should continue to develop, and governments should consider, for example, complementing slum upgrading efforts with policies expanding the supply of non-slum housing.