4. Evolution of urban form – econometric evidence The previous section provided descriptive statistics on built-up area growth, horizontal expansion and vertical layering of cities. In this section we expand on those stylized facts and provide econometric evidence to show how the evolution of urban form follows stages of a city’s economic development. There is a broader literature on institutions and economic development that makes the point that human capital, quality of institutions, and government effectiveness are strongly correlated with economic development (La Porta et al. 1999, Glaeser et al. 2004). More recently, Djankov and co-authors (2020) show that quality of institutions of land titling and transferring property across countries are generally much better in more developed countries.

Building and development choices are also shaped by institutions and regulations. Lack of clarity in land tenure creates a bias against sinking capital in formal structures and is a factor in the perpetuation of slum areas (Sturm, Takeda, and Venables 2021a). Building regulations, such as floor-area restrictions (FARs) often restrict density of both commercial and residential development, this lengthening commutes and weakening agglomeration spillovers between firms. Zoning can be done in ways that are damaging – locking in land-use patterns that become inappropriate as a city develops. Potential benefits could arise by regulating negative externalities that affect households, and possibly also by encouraging concentration of commercial activity, and so promoting positive spillovers and externalities between firms. Further, meeting the upfront capital costs of infrastructure and structures is more feasible in cities with higher incomes (Hommann and Lall 2019, White and Wahba 2019).

While we do not have comparable and representative data on institutional quality or regulatory regimes for individual cities, we use city incomes as a proxy for productivity as well as institutional and financial maturity. The econometric analysis examines how the evolution of urban form is closely tied to the processes of economic development. The econometric evidence is organized in three sub-sections. Section 4.1 examines the relationship between incomes and built-up area changes between 1990 and 2015. Section 4.2 examines links between income and city heights. Section 4.3 provides a new approach to look at the combined effect of population growth and income growth on floor space in a city.

# 4.1  The effects of income and population growth on built-up area

As population and income grow, cities expand by building more and occupying more land. We quantify the income and population elasticities of built-up using a panel of observations from the GHSL Urban Centers database. As described in section 2, built-up surface for all cities with more than 50,000 inhabitants in the world is available for four years: 1975, 1990, 2000, and 2015. City income and population estimates come from the same GHSL database.<sup>4</sup> Several econometric issues arise when estimating the impacts of a growing population and income on city built-up over the past decades. First endogeneity issues may arise as factors that are not observed may affect both the dependent variable, built-up surface, and the explanatory variables, population and income of the city. Second, there may be omitted variables that are key predictors of built-up but are not observed such as geographic or weather amenities. In each case, a simple OLS estimator will be biased. Therefore, the results from different specifications based on equation (1) are reported with each of them solving an econometric issue. The panel regression analysis is based on the following specification:

> 4 Similar estimates are obtained when using country income.

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