ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTE

Roads, Agriculture and Welfare: Evidence from a Quasi-Experimental

Setting in Rural Ethiopia

David Stifel – Lafayette College & IFPRIBart Minten – IFPRIBethlehem Koru – EDRI & IFPRI

EEA Conference 2012July 20, 2012Addis Ababa

1

What are the benefits of rural feeder roads?

The Question:

1. The measure of benefits• A standard road project appraisal relies on majoring

various Impacts (accessibility, quality, mobility,)

• Savings in transport

• Income / Consumption / Poverty impacts

2. Reverse causality• Non-random road placement

Measuring Benefits – Two Issues

• Donkey costs (Birr/kg)o Cost of renting donkey

o Weight donkey can carry

• Economic transport costso Include the opportunity cost

of time

Transport Costs

Average Travel Times and Transport Costs to the Market Town

Travel Time Transport Cost    (hours) (Birr/Quintal)Transport Cost Quintile

Least Remote 1.5 18.2Quintile 2 3.6 40.2Quintile 3 5.2 52.5Quintile 4 6.0 60.4Most Remote 6.5 73.4

Total 4.5 48.4

Percent of land holding area

   

Median plot size

(ha)

Median land

holdings (ha)

  Tan color Difficult to plow

Steep slope

Travel cost quintileLeast remote 0.3 2 9.5 17.6 6.3Quintile 2 0.3 1.8 7.4 27.8 16.4Quintile 3 0.3 1.4 8.4 25.8 12.8Quintile 4 0.3 1.1 3.1 33.1 15.3Most remote 0.3 1.3 3.5 37.9 15

Total 0.3 1.5 6.4 28.1 13Source: Authors’ calculations from Ethiopia Rural Transport Survey 2011

Is the primary difference between communities due to transport costs?

Crop Share (in total land area)

Modern Input UsePercent of households using…

Chemical Fertilizer Improved Seeds

    Any Dap Urea   (maize only)

Transport Cost Quintile

Least Remote 94.2 94.2 83.0 75.6

Quintile 2 86.2 86.2 61.4 31.2

Quintile 3 79.9 78.5 46.5 15.0

Quintile 4 73.2 73.5 49.3 12.4

Most Remote 71.1 71.7 37.5 9.4

Total 81.2 81.1 56.3 33.3

Adjusted Cereal Yields

05

10

15

20

Qui

ntal

s / h

a

0 20 40 60 80 100Birr/Quintal

Sorghum MilletMaize Teff

• Households’ willingness-to-pay for reduced transport costs

• Compensate a remote household just enough such that indifferent between…o Remote (τ = τ0)

o Situation in market town (τ = 0)

Estimate this compensation Equivalent variation

2. Measuring Benefits

• The average benefits are...

• where...

This is just the area under the demand for transport tonnage curve.

2. Measuring Benefits

Demand for Transport Tonnage

02

50

500

750

100

01

25

0kg

0 20 40 60 80 100Transport Cost (Birr/kg)

Total Freight Imported ConsumptionAgricultural Surplus Input Purchases

Demand for Transport TonnageSimple Model

Controlling for landholdings

Transport Cost Difference

    Coeff t-stat   Coeff t-stat   Diff z-stat

Total Freight

Transport cost per quintal -7.9 -9.52 -6.9 -8.51 -1.0 -0.86

Log of HH landholdings (HA) 190.6 10.46

Agricultural Surplus

Transport cost per quintal -3.5 -6.06 -2.4 -4.22 -1.1 -1.31

Log of HH landholdings (HA) 143.7 11.02

Imported Consumption

Transport cost per quintal -2.1 -4.39 -2.1 -4.06 0.0 0.00

Log of HH landholdings (HA) 16.0 1.41

Input Purchases

Transport cost per quintal -2.6-

20.72 -2.5 -20.79 -0.1 -0.80

Log of HH landholdings (HA) 33.5 12.43

Non-Farm Earnings

Pct. of HH with

NF earnings

Median NFearnings*

(Birr)

Percent difference in HH expenditures between those

w/ and w/o NF earnings   

Least Remote 7 1,000 20.0

Quintile 2 12 1,300 26.1

Quintile 3 13 1,200 22.8

Quintile 4 14 1,180 22.2

Most Remote 17 1,102 18.4

Total 12   1,102 22.1

* Among those with non-farm earnings

• Most remote households as accessible as the least remote

• ↓ transport costs by US$ 50 / ton

• Benefit ≈ 3,300 Birr per year (US$ 194)

o This is 60.5% of mean consumption (most remote)

Benefits Estimate

Benefit Estimates

For households in each of the following evenly spaced gridpoints

Benefit as percent ofhousehold consumption

Uncorrected Adjusted*2nd 2.0 2.03rd 5.4 5.34th 6.5 6.55th 6.7 6.76th 7.4 7.27th 17.2 16.98th 23.5 23.09th 53.0 51.8

  Most remote 60.5 57.6

Average for all households 9.3 9.1

* Adjusted for landholdings

• Cost ≈ 28 million Birr (US$ 1.60 million)

800,000 Birr / km of gravel road

35 km

• Benefits ≈ 10 million Birr per year (US$ 0.58 million)

1,930 Birr benefit on average

5,180 households in survey area

Three years for accrued benefits to exceed cost

Benefits vs. Costs

• Benefit to most remote HH ≈ 60% of HH consumption

• Costs of construction recovered in 3 years

• Final comments…o Only rural feeder roads

o Potential non-farm earnings

o Transport services are necessary

Concluding Remarks