DP17195 Spatial Inequality, Poverty and Informality in the Democratic Republic of the Congo
We build a two-sector model with labor market frictions to explain income disparities between provinces, sectors (formal vs. informal), and skill groups (skilled vs. unskilled) in the Democratic Republic of the Congo. We then parameterize the model to match observed income and employment data. We conduct a set of counterfactual “policy” experiments, to analyze the role of technologies, human capital, infrastructure, and labor market frictions in explaining spatial and within-province inequalities. We highlight strong "O-ring'' inequality patterns, implying that successful development policies involve a combination of coordinated policy actions. While spatial inequalities are mostly determined by technological disparities, a development policy that disregards the informal sector has anti-redistributive effects. Taken in isolation, policies targeting education, infrastructure, and labor market frictions can increase inequality and poverty, at least along the intensive margin.