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Spatial Misallocation,Informality, and Transit Improvements : Evidence from Mexico City

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  • Zarate Vasquez,Roman David

Abstract

This paper proposes a new mechanism to explain resource misallocation in developing countries:the high commuting costs within cities that prevent workers from accessing formal employment. To test this mechanism,the paper combines a rich collection of microdata and exploits the opening of new subway lines in Mexico City. Thefindings show that transit improvements reduce informality by 7 percent in areas near the new stations. The paperdevelops a spatial model that accounts for the direct effects of infrastructure in perfectly economies andallocative efficiency. Changes in allocative efficiency driven by workers’ reallocation to the formal sector amplifythe gains by 20–25 percent.

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  • Zarate Vasquez,Roman David, 2022. "Spatial Misallocation,Informality, and Transit Improvements : Evidence from Mexico City," Policy Research Working Paper Series 9990, The World Bank.
    • Handle: RePEc:wbk:wbrwps:9990
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