URBAN SPRAWL AND SOCIAL CAPITAL: EVIDENCE FROM INDONESIAN CITIES

We use detailed data from Indonesian cities to study how variation in density within urban areas affects social capital. For identification, we instrument density with soil characteristics, and control for community averages of observed characteristics. Under plausible assumptions, these controls address sorting on observables and unobservables. We find that lower density increases trust in neighbours and community participation. We also find that lower density is associated with reduced interethnic tolerance, but this relationship is explained by sorting. Heterogeneity analysis suggests that crime in dense areas undermines community trust and participation, intensifying the negative impact of density.