INFRASTRUCTURE INVESTMENT IN LOW-INCOME COUNTRIES: THE BENEFITS OF RURAL ROAD-BUILDING

Rural roads provide substantial benefits to households in low-income countries, especially the poorest, but they are not a panacea for poverty alleviation. That is the conclusion of an analysis of household survey data from Nepal, a largely agrarian society with a sparse road network. The research by Hanan Jacoby of the World Bank is published in the latest issue of the Economic Journal.

Rural road construction is a major development priority, yet little is known about the size and especially the distribution of benefits from such infrastructure investments in low-income countries. Given limited policy instruments for reaching the remote rural poor, road-building would seem desirable on distributional grounds.

This study finds that extending road access to the entire rural population of Nepal would raise average income by about 10%. The benefits of rural roads are due to the lower costs of transporting crops to market and obtaining modern inputs such as fertiliser. Although many of these benefits would go to the poor, who tend to live in more remote areas, the benefits are not large enough to make big progress on poverty alleviation. Part of the reason for this is that the primary beneficiaries of infrastructure projects are landowners, who are typically not that poor.

The study uses the price of farmland to measure the value of roads. Since better access to markets would make farming more profitable, land nearer to a road should fetch a higher price. This is indeed what the data from Nepal show: a 10% reduction in travel time to the nearest market centre raises the value of farmland by more than 2%.

New road construction directly benefits landowners by raising the value of their land, but land-less households that supply farm labour are unlikely to benefit at all. The study finds that wages are lower in more remote rural areas of Nepal: half a percentage point lower for a 10% increase in travel time. However, the lower wages in more remote areas are probably offset by the lower cost of living. Road construction would therefore have little net benefit from the perspective of the land-less household, since any increase in wages would be accompanied by a rise in the cost of living.

The study also notes that the use of fertiliser, a major input in the rice agriculture of Nepal, declines steadily the further you get from market centres where fertilisers are purchased. A similar phenomenon is found for crop sales, which slow to a trickle as you move deeper into Nepal's rugged hinterland. These findings reinforce the importance of transportation costs in Nepal.

Since the study relies heavily on farmers' own reports of the value of their farmland, land price information was checked against data on rents paid for the same plots when used by another farmer. There was a remarkable consistency between these two sources of information on land value, indicating that farmers are well aware what their land is worth. This is not surprising, given that land is by far their most important asset.

Note for Editors: 'Access to Markets and the Benefits of Rural Roads' by Hanan Jacoby is published in the July 2000 issue of the Economic Journal. Dr Jacoby is at the World Bank.

For Further Information: contact Hanan Jacoby on 001-202-473-7469 (email: hjacoby@worldbank.org); RES Media Consultant Romesh Vaitilingam on 0117-983-9770 or 07768-661095 (email: romesh@compuserve.com); or RES Media Assistant Niall Flynn on 020-7878-2919 (email: nflynn@cepr.org).