Slum Upgrading and Long-Run Urban Development: Evidence from Indonesia

The United Nations estimates that 2.5 billion people will be added to cities by 2050 and that 95% of the urban expansion will be in the developing world. Policy makers are considering different approaches to expand cities to accommodate the massive urbanization flows.

We examine the long-term outcomes of one of the world’s largest slum upgrading programs, the Kampung Improvement Program in Indonesia, which covered 5 million people. This project is funded by the Tanoto ASEAN Initiative and the Global Initiatives at The Wharton School.

Results

We examine areas in Jakarta that were covered by the Kampung Improvement Program. Today, these areas are more informal, with fewer high-rises and lower land values relative to comparable areas, consistent with delayed formalization.

Surplus calculations show heterogeneous opportunity costs associated with preserving slums. 90% of the losses are concentrated in half of the program areas, where land values are high. Elsewhere, KIP delivers a sizable surplus to residents. Our exercise informs the debate on whether to upgrade or formalize slums as cities expand.

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Slum Upgrading and Long-Run Urban Development: Evidence from Indonesia

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