increase was 1.7 percentage points higher in Africa and Asia than in Europe. Given an effect of 1.50, this gives a crude difference of (1.7 x 1.50 =) 2.5 percentage points of urbanization every ten years. Urban natural increase may thus contribute to explaining why today’s developing world has urbanized at a much faster pace than the old developing world.

# **4. DISCUSSION**

# **4.1 Potential Welfare Consequences**

Given the high urban rates of natural increase in today’s developing world (urban population doubles every 18 years), urban capital (e.g., houses, schools and roads) must grow as fast as the urban population. If not, fast urban growth can lead to urban congestion, which may reduce urban utility.<sup>21</sup> Panel data on the evolution of urban wages and amenities over time do not exist, so we use cross-sectional data on various measures of congestion for the most recent period. Our main measure is the share of the urban population living in slums (%) in 2005-2010. We have data for 113 low-income countries in 1960, but we focus our analysis on 95 countries for which we also have data on natural increase. We first regress the slum share on the urban growth rate and the change in the urbanization rate between 1960 and 2010. We control for income and urbanization in 1960 and 2010 and add the controls and the regional fixed effects. Row (1) of Table 3 shows that slum expansion is associated with the urban growth rate, but not with the change in urbanization. Indeed, what matters for urban congestion is the absolute number of urban residents per sq km.<sup>22</sup> When decomposing urban growth into urban natural increase and residual migration, we find that the slum share today is disproportionately correlated with the urban rate of natural increase in 2000, which is used as a proxy for urban natural increase in 1960-2010 (row (2)).<sup>23</sup> The same general pattern holds when we choose other measures of congestion reflecting living standards, environmental degradation, and economic sectors (Table 3, rows (3)-(11)).<sup>24</sup> 21We believe that these congestion effects are not just temporary, even if urban capital can adjust in the longrun. First, the population increase that we document is not just a one-time shock, but implies a continuous stream of new residents every period. Second, past population shocks may have long-run consequences. Past congestion in urban housing favors the development of slums, that will be costly to reorganize efficiently ex post. Likewise, past underinvestments in human capital affect long-run productivity. Third, congestion effects can be avoided when urban growth is expected and when agents are forward-looking, with sufficient credit available to make the necessary investment in advance. These conditions may not have been met in developing countries.

22If countries are unable to cope with fast urban growth, we expect non-linearities in the relationship between slums and urban growth. Web Appx. Table 12 shows some suggestive evidence that slum expansion is disproportionately associated with the number of years in which an urban population doubles.

> 23We use data for the year 2000, because we have urban natural increase data for much fewer observations in the 1960s. Residual migration is here defined as the difference between annual urban growth between 1960 and 2010 and urban natural increase in 2000. Again, these effects are not necessarily causal.

> 24The dependent variables in rows (3)-(7) are for the shares of urban inhabitants who (3) lack sufficient living-area, (4) live in a residence with a finished floor, (5) have access to an improved water source, (6) have access to improved sanitation facilities, (7) use solid fuels (e.g., wood) as the main domestic source of energy. The dependent variables in rows (8)-(10) are as follows: (8) the urban share of 6-15 year-old children

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