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Measuring Informality

Why Bother? An Application to Latin America

Ciro Biderman and Martim O. Smolka

January 2013, English

This paper suggests that informality in Latin America is falling—that is, getting better—but not in all places and at the same rates of change. Apparently, there is a built-in inertia in the system, with cities that have improved most in the past continuing to do so in the present, whereas low-performance cities seem to be trapped in a bad equilibrium state. The improvements seem to result from deliberate/organized intervention, suggesting that public policy not only matters but, most importantly, also depends on local political will rather than a generalized process affecting all cities in the same manner. Changes in urban poverty do not seem to be a determining factor in explaining changes in informality attributes. Different combinations of attributes usually describe informal settlements. The paper shows that the effectiveness of policies addressing a given attribute vary considerably, even within the same country. Further research is needed to explain the causes of such variance.