Home-Based Enterprises in Cities of Developing Countries

Dwellings can provide not only shelter and amenities but also an income through rental space or use as a shop. Such income helps to finance the dwelling and its improvement. But policymakers have often opposed work-at-home urban design because of devotion to unifunctional land use theories and because of a moralistic bias against private economic gain from social housing support. Moreover, home businesses are thought to be unproductive sweatshops with no future. Yet these capital-generating, capital-saving home enterprises remain almost as widespread in LDCs as they were in Europe before the Industrial Revolution. Briefly in vogue during the 1950s, cottage industries faded from popularity after the wasteful experience in India. Stress on the "informal sector" came after 1971 but has not been concerned with the location of small enterprises. The thesis of this article is that location and related costs and opportunities do matter and that better policies can improve income, employment, and housing. I begin with a review of the literature and note that, except for economic historians, most writers have ignored location. With data from Peru, Sri Lanka, and Zambia, I show that home-based enterprises (HBEs) mobilize resources effectively and increase national product. Although they are more than merely redistributive, their proliferation is nevertheless consistent with more equitable income distribution. In most countries, HBEs will proliferate before declining in numbers, but some types will fare better than others. Examining the data, I found that classification of types should be not only in terms of specific products or services but should also take into account traits of the household and its neighborhood. I will show how the changing composition of HBEs is related to their competitiveness or complementarity with the modern sector. What is their share of employment and their contri-