Why do some countries have lots of slums and others hardly any?

Urbanization and city development are key drivers of slum populations, but ultimately per capita income growth is likely the path to eliminating slums.

Why do some countries have large portions of their populations living in urban slums and some countries have few slums if any?  For example, Nicaragua and the Republic of Congo have over 30% of their total populations — not just their urban populations — living in slums.  Brazil and India have nearly 15% of their population in slums.  But Switzerland and the United States have less than 1% of their population in slums.   

Figure 1: Share of population living in slums in 2010 (select countries)

A trendy answer is income inequality: countries with large gaps between the rich and poor have more people living in slums because, perhaps, the rich squeeze resources from the poor.  While there is a slightly positive relationship between inequality and the fraction of a country’s population living in slums, that relationship is weak.  As Figure 2 illustrates, you can find highly unequal countries, like the United States, with scarcely any slums, as well as relative (poor but) egalitarian countries, such as Pakistan, with many slums.  Moreover, (a quadratic function of) inequality explains only 16.9% of the variation in slum population shares.  (Note that inequality falls as you go right in Figure 2, since it measures the fraction of national income earned by the bottom 20% of earners.)

Figure 2: Share of population in slums in 2010, by share of income held by the bottom 20% of earners

A better answer to why a higher share of some countries live in slums is poverty, though the connection between poverty and slum population is complicated.  Unlike inequality, a quadratic function of per capita income can explain 42.8% of the variation in slum population shares.  However, as Figure 3 shows, there is an inverse U-shaped relationship between the share of a population living in slums and a country’s income: the share of the population living in slums rises and then falls with per capita income.  Two extreme examples are Burundi, with a per capita GDP of international $630 but less than 10% of its population in slums, and Peru, with a per capita GDP of $9,644 and nearly 30% of its population in slums.   

Figure 3: Share of population in slums in 2010, by per capita GDP 

To understand why, it helps to break (a) the share of the total population living in slums into two parts: (b) the share of the urban population in slums and (c) the share of the total population in cities:

Each of these two parts has a different relationship with per capita income.  As Table 1 shows, countries in the bottom 20% of countries based on per capita incomes have a low (a) percentage of their population in slums because they have a largely rural population: although they have a high (b) percent of their urban populations living in slums, they have small (c) share of the population living in cities.  By contrast countries in top 20% of countries based on per capita income have a low (a) share of population in slums because they have well-built cities: while they have a high (c) percentage of their populations living in cities, a small (b) fraction of urban residents lives in slums.   The countries in the 3^rd and 4^th deciles of per capita income, however, have a high share of their populations in urban slums because they have moderate levels of urbanization and a moderate share of urban residents in slum.

Table 1: Slum share of population, slum share of cities, urban share of population, by decile of GDP per capita.

Figure 4 illustrates graphically the two key drivers of slums: the rate of urbanization and the development of cities.  It shows quadratic fit lines based on data from 2010.  As per capita incomes rise, a country’s population shifts from rural areas to cities (blue line).  This is because cities are a path to economic growth: the density of populations in cities reduces the cost of trade, enables specialization, and encourages the exchange of ideas.   At the same time, as per capita income rises, urban areas are converted from slums to formal structures (red line).  High incomes mean greater ability and willingness to pay for well-built and legally-protected homes.  The purple line, which is identical to the analog in Figure 3, shows the result: the share of a country’s population in slums rises and then falls with income.  (We explore both drivers in a book in progress: the phenomenon of urbanization in Part 1 and housing development in cities in Part 3.)

Figure 4: Fit lines for (a) share of the total population in slums, (b) share of the urban population in slums, and (c) urban share of the total population, by per capita GDP in 2010. 

Why is it important to know that the share of the population living in slums depends separately on the share of an urban population in slums and the share of the total population in cities?  First, and most obviously, it explains why growth can increase a slum population, at least in the early stages of development.  That, in turn, helps us understand an old, but important viewpoint on slums: that slums are a rung in the ladder of social mobility.  People move from rural areas to cities in search of a better live (i.e., higher wages).  When formal urban housing cannot keep up, or is unaffordable, urban migrants live in slums.  Slums look horrific to Western audiences, but are an improvement over rural life.  If it were not, migrants would return to their villages.  

Second, this model can help us project the growth in slums, a topic I will cover in a different post.    Once we know that total slum populations depend on the growth of cities and the development of cities, we can use models that predict urbanization and city development based on per capita income to predict the growth and decline of slum populations in a country.

Finally, the relationship between the drivers of slum populations and economic growth helps us understand why it might be that income growth, and not just narrow policies such as tenure rights or public housing, are critical to the elimination of slums.  As cities get better at housing low-income migrants in their borders, they will attract additional, lower-income migrants from villages.  The task of improving slums will seem Sisyphean.  However, if the country can increase rural incomes, the new migrants will be able to afford formal housing when they arrive in cities.  That is the pattern observed in developed countries, like the US after World War II.   

Notes. The data for this post are from the World Bank. The World Bank provides data on slum populations for many countries every 2 years from 2000 to 2020, but has data on fewer countries towards the latter part of this date range. This post focuses on data from 2010, but has patterns you will find in all the years. Plots and tables that use all the years of data look very similar.