Essays in development and urban economics

The first chapter is a co-authored paper that analyzes the causal impact of air pollution on the housing market as the result of a dramatic exogenous increase in air pollution levels in Tehran in 2010 in the aftermath of sanctions imposed on Iran. The sanctions, intended to pressure Iran to end uranium enrichment activities, targeted gasoline imports into the country. In response, Iran rapidly converted some petrochemical plants into refineries to produce gasoline, which was of much lower quality than imported gasoline. This caused a quick and drastic increase in air pollution levels that varied significantly across individual neighborhoods. Using this natural experiment and unique administrative data on Tehran’s housing market, we find that an increase of approximately 30 parts-per-billion in the outdoor concentrations of nitrogen dioxide leads to a decrease in housing prices of roughly 3 percent to 5.2 percent. We find that lower levels of air pollution are associated with higher price-rent ratios, and higher levels of air pollution raise the odds that owners will rent their property rather than occupy it themselves. Our welfare analysis suggests that the deterioration of air quality in 2010 is associated with a reduction in aggregate housing values of $11 billion to $16 billion in Tehran alone. Also, this paper offers what we believe is the first examination of indirect costs that stem from international sanctions against Iran. In the second chapter, I empirically investigate the effect of genetic diversity on income inequality in a large cross-section of countries. Previous studies demonstrated that ethnic, linguistic and religious fractionalization have significant impact on economic performance measures, but the effect will become weaker or disappear once we control for income per capita or latitude as a measure of geographic variation. Other than that, linguistic, ethnic and religious classifications to some extent suffer from the problem of endogeneity and, at best, they capture part of visible diversity. To address these problems, I construct a cross-country genetic fractionalization measure based on the notion of paternal Y-chromosome DNA haplogroups. The resulting genetic diversity measure, which is rooted in long-term history, is less subject to the problem of endogeneity. In addition, the distances among different populations are accounted for in such fractionalization index. Finally, the empirical results show that a higher level of genetic fractionalization is associated with a higher level of income inequality. Also, this paper discusses the main mechanisms through which the genetic fractionalization measure can affect income inequality by presenting empirical evidence. It is presented that the genetic diversity measure is successful in explaining interpersonal trust as an index for individual cooperation and also tax compliance rates, public good output and even the democracy index as measures for social cooperation. The third chapter is based on another co-authored paper. This paper examines the direct effects of a size-dependent credit extension policy on small manufacturing firms (with 10-49 workers) in Iran. This policy was launched in November 2005 with the primary aim of quickly boosting employment opportunities. The policy was vigorously pursued in 2006 and 2007 and was phased out thereafter. We employ a large panel dataset of Iran’s manufacturing plants over the period of 2003-2013 to study the impact of this policy on the firms’ level of employment, capital stock, and total factor productivity (TFP). We take advantage of the threshold effect of the policy’s focus on firms with less than 50 workers to identify its effects on small firms, comparing firms with 45-49 workers and those with 50-54 workers while controlling for industry, year, and a number of other effects. We find that the policy had induced increased capital formation among small firms in 2006-2008, but it had little detectable impact on employment and TFP.U of I OnlyAuthor requested U of Illinois access only (OA after 2yrs) in Vireo ETD syste