The Urban Geography of Entrepreneurship and Formality in Poor Countries

This study will evaluate the impact that intra-city transportation infrastructure might have on SME growth and formalization by lowering the transportation costs of goods and labor. Cities are the engine of economic growth, but congestion in rapidly growing cities is a major issue facing policy makers. Urban transportation infrastructure is the central policy tool used to ease congestion, but the paucity of geographic urban data in developing countries leads to a lack of evidence on the effects of that infrastructure on patterns of industrial development. This project studies the within-city determinants of economic activity by constructing a new high spatial resolution dataset of economic establishments, infrastructure, housing prices and other neighbourhood characteristics, starting with the metropolitan areas of Delhi, Bombay and Calcutta, in India. This will provide some of the first descriptive evidence on the spatial patterns of industry in growing cities, as well as the role of transportation infrastructure in shaping those patterns.

The research team will then test for the causal impact of the Delhi Metro, one particularly prominent recent infrastructural investment, as well as the other location characteristics associated with employment growth, agglomeration, entry and formality, on several economic outcomes. Since the endogenous placement of transportation infrastructure makes selection bias a considerable challenge when estimating its effects, the researchers will take advantage of the rollout of the Delhi Metro to compare firm-level outcomes among areas that are slated to get the Metro, with delays in construction providing quasi-random variation in the areas that receive a Metro station.

The authors will also use Delhi’s 2005 Economic Census to investigate the role of urban transport in creating conditions for female entrepreneurship and labour market participation. One major barrier to such participation in cities, in India like in many other developing countries, is the lack of safe and reliable transportation for women. This research will thus provide some of the first rigorous econometric evidence for the impact of transportation infrastructure on entrepreneurship and female labor force participation in cities.

India’s rapid economic growth in recent years and improvements in quality of infrastructure, along with its wealth of spatial firm-level data, allows the examination of determinants of entrepreneurship and formality that are highly relevant to low-income countries. This study is thus expected to produce significant insights not only for India, but for low-income countries seeking to promote and manage rapid urbanization and economic growth.


Sam Asher

World Bank

Paul Novosad

Dartmouth College