The geography of economic inequality refers to the spatial sorting of individuals by income, economic resources, and opportunities. Neighbourhoods play a significant role in access to labour markets, education, health, and other public services. South Africa is a particularly significant case study for examining how residential segregation affects inequality, growth, and structural transformation. The apartheid era was characterised by structural and extreme racial segregation and inequality. Despite clear political commitments to mitigate inequality and discrimination since democratisation almost 30 years ago, inequality remains among the highest in the world. This project explores whether inequality in South Africa remains high due to the persistence of spatial and economic segregation imposed under apartheid. Does segregation create poverty traps driven by low human capital accumulation, low levels of public and private investments, and persistent policy neglect by governments?
Given how recent apartheid was, there exists a large number of datasets (aggregate and household-level) that can be used to document different dimensions of inequality and analyse the mechanisms generating its persistence. The project first establishes stylised facts about the differences in socioeconomic outcomes between urban centres and ‘townships’. This analysis can also shed light on the heterogeneity across townships based on geographical and economic connections to the urban area. The researchers then incorporate this data analysis into a quantitative macro model to formalise the links between residential choice, education, and production. The model enables examination of the effects of the initial socioeconomic and geographical segregation on the persistence of inequality and growth.
In many developing countries, migrants from rural areas with low levels of human capital migrate to urban areas to work in low-skilled jobs. Deprived and underserved settlements often on the periphery of urban areas, like townships, are a mechanism available to those migrants to avoid the housing costs of the formal city, and still gain access to the urban labour markets. On the other hand, living in these areas might create a poverty trap. This project will not only explore the impact of economic segregation on a broad range of economic outcomes, but also help to inform policymakers about the impact of various policies, such as increased school funding in poorer areas, on the allocation of resources, growth, and inequality.