1. ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTERoads, Agriculture and Welfare:Evidence from a Quasi-ExperimentalSetting in Rural EthiopiaDavid Stifel Lafayette College & IFPRI ESSP-IIBart Minten IFPRI ESSP-IIBethlehem Koro EDRI & IFPRI ESSP-IIEthiopian Development Research InstituteMarch 15, 2012Addis Ababa 1

2. The Question: What are the benefits of rural feeder roads? 3. What do we know?Improved rural infrastructure affects...Transport costsInput costsTimely input availabilityAgricultural productivity (Minten & Stifel, 2008)Nonfarm production (Binswanger et al., 1993)Poverty (Lokshin & Yemtsov, 2005; Khandker et al., 2009)Also, Ethiopian Road Sector Development Program (RSDP) 4. Measuring Benefits Two Issues1. The measure of benefits Impacts (accessibility, quality, mobility) Savings in transport costs Income / Consumption / Poverty impacts2. Reverse causality Non-random road placementHigh productivity Road constructed ?Road constructed High productivity ? 5. 1. How to handle causation? Panel data Dercon et al., 2009 Difference-in-differences Mu and van de Walle, 2007 Propensity score matching Lokshin & Yemtsov, 2005Rely on estimators to do the work 6. 1. How we handle causation Quasi-Experiment Sample area selected purposefullyoHomogeneous regionoExcept for transport costs Households circumstances differ because ofdifferent transport costs... ...not because of land characteristics, etc.Let the data to the work 7. Transport Costs Donkey costs (Birr/kg)oCost of renting donkeyoWeight donkey can carry Economic transport costsoInclude the opportunity cost of time 8. Average Travel Times andTransport Costs to the Market TownTravel Time Transport Cost(hours) (Birr/Quintal)Transport Cost QuintileLeast Remote1.5 18.2Quintile 23.6 40.2Quintile 35.2 52.5Quintile 46.0 60.4Most Remote 6.5 73.4Total 4.5 48.4 9. Is this a Quasi-Experiment? Is the primary difference between communitiesdue to transport costs? Compare...o Land characteristicso Land productivity 10. Characteristics of Agricultural LandPercent of Land Holding AreaMedian Land Median Plot HoldingsTanDifficult SteepSize (HA)(HA) Color to Plow SlopeTravel Cost Quintile Least Remote 0.3 2.09.517.6 6.3 Quintile 2 0.3 1.87.427.816.4 Quintile 3 0.3 1.48.425.812.8 Quintile 4 0.3 1.13.133.115.3 Most Remote0.3 1.33.537.915.0Total 0.3 1.56.428.113.0 11. Altitude of sample households250020001500Meters 1000 5000 020406080 100 Transport Costs (Birr/Quintal) bandwidth = .8 12. Land Productivity What crops?o Sorghumo Milleto Maizeo Black/mixed teff Counfounding factors?o Weather and pest shockso Inputs labor, fertilizer, herbicides, Improved seeds 13. Modern Input Use Percent of households usingChemical Fertilizer Improved SeedsAnyDapUrea(maize only)Transport Cost QuintileLeast Remote94.2 94.2 83.075.6Quintile 286.2 86.2 61.431.2Quintile 379.9 78.5 46.515.0Quintile 473.2 73.5 49.312.4Most Remote 71.1 71.7 37.5 9.4Total 81.2 81.1 56.333.3 14. Cereal Yields by Transport CostSorghum Millet 202015 15Quintals / hectare Quintals / hectare 1010 55 0002040 60801000204060 80100Transport Costs (Birr/Quintal) Transport Costs (Birr/Quintal)Unadjusted Adjusted for weatherUnadjustedAdjusted for weatherAdjusted for weather and inputsAdjusted for weather and inputsMaizeBlack/Mixed Teff 20 2015Quintals / hectare Quintals / hectare1510 10550 0020406080100Transport Costs (Birr/Quintal) 0 20406080100Transport Costs (Birr/Quintal)Unadjusted Adjusted for weather UnadjustedAdjusted for weatherAdjusted for weather and inputs Adjusted for weather and inputs 15. The Setting Stylized FactsAnnual Household Per Capita Consumption60004000 Birr per person 2000 0 0 2040 6080 100Transport Costs (Birr/quintal) Total Food Non-Food 16. The Setting Stylized FactsSchooling by Transaction Costs Adults (age 15-30)Enrollment ratePercent withAverage years of schooling(ages 5-15) some schooling Full sample Those with schoolingTransport Cost Quintiles 41.9 Least Remote41.91.84.4 39.1 Quintile 232.81.64.8 46.5 Quintile 337.01.74.7 33.2 Quintile 440.71.64.0 32.4 Most Remote 36.81.64.5 Total 36.538.01.74.5 17. The Setting Stylized FactsFood Insecurity 18. 2. Measuring Benefits Previous outcomeso Indicators of cost of remotenesso Indicators of benefits of reduced transport costs Our measure Households willingness-to-pay forreduced transport costs (Jacoby and Minten, 2009) 19. 2. Measuring Benefits Thought experiment...Compensate a remote household just enoughsuch that indifferent betweeno Remote ( = 0)o Situation in market town ( = 0) Estimate this compensation Equivalent variation Willingness-to-pay 20. 2. Measuring Benefits Let household income be defined as... Households maximize income & utility 21. 2. Measuring Benefits Benefit is defined by... How can we estimate ??? 22. 2. Measuring Benefits Differentiating the identity gives us... 23. 2. Measuring Benefits These are just marginal changes,but if we sum them up (i.e. integrate)... 24. 2. Measuring Benefits We are interested in the average benefits...This is just the area under the demand fortransport tonnage curve. 25. Measuring Willingness to Pay forTransport Cost Reduction 26. Demand for Transport Tonnage12501000750 kg5002500 0 20406080 100Transport Cost (Birr/kg) Total Freight Imported Consumption Agricultural SurplusInput Purchases 27. Demand for Transport Tonnage Controlling for Transport Cost Simple Model landholdings DifferenceCoeff t-statCoeff t-statDiffz-statTotal Freight Transport cost per quintal -7.9-9.52-6.9-8.51 -1.0 -0.86 Log of HH landholdings (HA) 190.610.46Agricultural Surplus Transport cost per quintal -3.5-6.06-2.4-4.22 -1.1 -1.31 Log of HH landholdings (HA) 143.711.02Imported Consumption Transport cost per quintal -2.1-4.39-2.1-4.060.00.00 Log of HH landholdings (HA)16.01.41Input Purchases-20.7 Transport cost per quintal -2.62-2.5 -20.79 -0.1 -0.80 Log of HH landholdings (HA)33.512.43 28. Non-Farm EarningsPct. of HH Median NF Percent difference in HHwith earnings* expenditures between those NF earnings (Birr)w/ and w/o NF earningsLeast Remote71,00020.0Quintile 2 121,30026.1Quintile 3 131,20022.8Quintile 4 141,18022.2Most Remote171,10218.4Total121,10222.1* Among those with non-farm earnings 29. Benefits Estimate Most remote households as accessible as theleast remote transport costs by 75 Birr / quintal Benefit 3,300 Birr per yearo48% due to agric surplus priceso42% due to consumption prices 30. Benefit EstimatesFor households inBenefit as percent ofeach of the followinghousehold consumptionevenly spaced gridpointsUncorrectedAdjusted*2nd 2.0 2.03rd 5.4 5.34th 6.5 6.55th 6.7 6.76th 7.4 7.27th17.216.98th23.523.09th53.051.8Most remote60.557.6Average for all households9.39.1* Adjusted for landholdings 31. Benefits vs. Costs Cost 28 million Birr800,000 Birr / km of gravel road35 km Benefits 10 million Birr per year1,930 Birr benefit on average5,180 households in survey areaThree years for accrued benefits to exceed cost 32. Concluding RemarksEstimate benefits of a rural feeder roadIssues:1. Causality (endogenous road placement) o Quasi-experimental data set2. What benefit measure to use o Willingness to pay for transport cost 33. Concluding Remarks Benefit to most remote HH 60% of HH consumption Costs of construction recovered in 3 years Final commentsoOnly rural feeder roadsoPotential non-farm earningsoTransport services are necessaryoOnly this study area, but informative nonetheless 34. Thank you