Access to Markets and the Benefits of Rural Roads
30 Pages Posted: 20 Apr 2016
Date Written: June 1998
Improving road access to agricultural markets in Nepal would confer substantial economic benefits on average, much of them going to poor households. But rural road construction is more like a tide that lifts all boats than a highly effective means of reducing income inequality.
Transport infrastructure plays a central role in rural development, yet little is known about the size - or, especially, the distribution - of benefits from road investments. Among other benefits, rural roads provide cheaper access to both markets for agricultural output and for modern inputs.
Jacoby develops and implements a method for nonparametrically estimating the benefits from road projects at the household level. The idea is that since these benefits get capitalized in land values, they can be estimated by examining how the value of farmland falls with distance from agricultural markets. Household-level benefits from hypothetical road projects are calculated from the predicted appreciation in value of the household's farmland. These predicted benefits are then related to household per-capita expenditures to assess their distributional consequences.
The empirical analysis, using data from Nepal, shows large benefits from extending roads into remote rural areas, much of these gains going to poorer households. But rural road construction is not the magic bullet for poverty alleviation. The benefits are neither large enough nor targeted well enough to reduce income inequality appreciably.
This paper - a product of Rural Development, Development Research Group - is part of a larger effort in the group to study the impact of rural roads and other forms of infrastructure on household welfare and economic growth. The author may be contacted at firstname.lastname@example.org.
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