Location Matters: Social Networks, Neighborhood Effects and Economic Development in Urban India

Harvard University, Cambridge MA

Investigators

Abstract

This project consists of three studies that investigate how social and spatial distance across and within neighborhoods affect the economic and social mobility of the urban poor, focusing on three specific channels: access to improved housing in a richer neighborhood, peer externalities within a neighborhood, and access to banking services offered through microfinance institutions. The studies collect and analyze household survey data from Ahmedabad, India's sixth most populous city located in one of India's most industrialized and fastest growing states, Gujarat. While a number of previous studies have empirically examined neighborhood effects in the developed world, few have focused specifically on urban areas of developing countries. This project fills this gap in empirical research on both the spatial dynamics of urban poverty and on how residential arrangements influence economic mobility in the developing world. It also adds to the growing literature that looks for evidence of peer effects on learning and behavioral change. Dissemination of research findings from these studies will have a broad impact by helping policy makers with key decisions related to the location and characteristics of housing, infrastructure and banking services targeted to the urban poor. The first study examines an urban relocation program in Ahmedabad that allocated housing to low income women who had previously lived in inner city ghettos by lottery. Using household survey data collected from lottery winners and losers 15 years after the lottery, we analyze how moving into public housing projects away from the inner city affected the income, occupational opportunities, and social mobility of beneficiaries and their families. These findings directly bear on key housing policy questions in many parts of the developing world, such as the trade-off between upgrading housing in existing slum areas versus relocating slum dwellers to new housing in "better" neighborhoods. The second study uses a similar public housing experiment to examine in one neighborhood the degree to which peer effects from randomly assigned neighbors of different socio-economic backgrounds influence upward mobility. The analysis makes use of differences in social distance and diversity of neighbor groups to investigate how exposure to wealthier or more educated neighbors influences attitudes, consumption, investment, and economic mobility. Distinguishing neighborhood location from neighborhood composition effects matters for policy since governments must decide not only where to locate public housing but whether to use public housing as an instrument to foster socio-economic integration of neighborhoods. The final study examines how social networks and neighborhood location of the urban poor affect access to financial services, an important element for upward mobility. For the urban poor, microfinance institutions (MFIs) are the primary source of financial services. Urban MFIs rely heavily on the social and neighborhood networks of loan officers to screen clients. The study uses data on the spatial location of collection officers employed by the largest MFI in Ahmedabad to examine how variation in a client's distance to the nearest collection officer affects access to financial services, and uses this variation to examine the impact of financial services on the lives of the poor. A large and growing literature suggests access to financial services can significantly improve the economic opportunities available to the poor; however, solid empirical evidence on this question is still lacking.