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Urban Governance and Development of Informality in China and India

Working paper #773
Arthur Acocca, Shahana Chattaraj and Susan M. Wachter

This paper contrasts the process of urbanization in China and in India and the differing outcomes in terms of the provision of urban infrastructure and the development of informality in each country. Differences in the role of local financing and governance structures help explain extraordinary differences in per capita levels of infrastructure and in levels of informality in urban real estate and labor markets. In China, multiple incentives for local urban growth, combined with the practice of Hukou—the limitation of access to the rapidly developing cities—has resulted in massive growth of a formally housed new urban middle class. In India, on the other hand, urbanization, although slower, occurs outside of formal institutional processes without adequate financing and delivery of public goods and services, resulting in large-scale informality. The paper concludes with a comparison of the challenges faced by China and India in managing urban growth.

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