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Building the City Under Financial Frictions

Author

Listed:
  • David Gomtsyan

    (Universite Clermont-Auvergne)

Abstract

Weak financial institutions may affect developing countries due to slowing the much-needed construction process of residential housing. Using novel data collected from Nairobi, I document considerable heterogeneity in the construction duration of new residential buildings, with about 40% of buildings started in 2009 still unfinished in 2018. To understand the role of financial development in constructing residential housing, I develop a heterogeneous agent model with financial frictions in which households construct individual housing units. Counterfactual simulations show that improvements in credit provision can substantially speed up the expansion of the aggregate housing stock and increase the city's density by enabling the construction of taller buildings. The model also predicts that investments in incomplete structures emerge as an alternative savings vehicle in the absence of reliable savings accounts. (Copyright: Elsevier)

Suggested Citation

  • David Gomtsyan, 2024. "Building the City Under Financial Frictions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 52, pages 70-83, April.
    • Handle: RePEc:red:issued:23-113
    DOI: 10.1016/j.red.2023.12.002
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    Keywords

    Urban growth; Housing investment; Financial frictions;
    All these keywords.

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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