Impact of Road on Rural Poverty : Evidence Form Fifteen Rural Villages in Ethiopia

A major road sector investment program has been under way in Ethiopia since 1997 which led to significant improvement in road accessibility. As a low-income country with no railway and water transport systems, road transport is of ultimate importance for the Ethiopian economy. The purpose of this paper is to assess empirically the effect of this public investment program on the welfare of rural households in Ethiopia. It looks specifically at the rate of poverty reduction and growth rate of household consumption in response to change in road accessibility. The paper combines a panel data of rural households in Ethiopia with a provincial level panel data of road density to estimate the impact of road on poverty and consumption. Alternative econometric estimation methods have been used to assess the robustness of the association between road infrastructure and rural wellbeing. After controlling for household characteristics and geographic determinants of economic performance, we find that the poverty headcount ratio declines with improvement in road accessibility of rural villages. The study also shows that better road connectivity not only increases the likelihood of crossing over the poverty line but also enhances the rate consumption growth significantly. The study went further to examine some of the mechanisms through which road might improve the standard of living in rural areas. We find that rural households with better road network are not only more likely to use modern fertilizers but they also make intensive use of fertilizers. Moreover, the paper finds evidence that the overall productivity of farm households increases significantly with the degree of road access. Relevance to Development Studies Public infrastructure plays a fundamental role for the development of a country. Evaluating the impact of public investment on economic performance is an integral part of the design of development policies and strategies so that such interventions would lead to poverty reduction and sustainable development. Discovering the efficiency and equity implications of road infrastructure and the mechanisms through which it affects the wellbeing of households has important contribution to the academic and policy discussion on the role of government in economic development. The author believes that the paper contributes to this discussion and the findings would encourage further research in this field.