Roads, Participation in Markets, and Benefits to Agricultural Households: Evidence from the Topography-Based Highway Network in Nepal

Abstract

This paper identifies the role of roads in improving agricultural livelihoods, and examines the key market mechanisms through which improved connectivity translates into economic gains for agricultural households. I use a rigorous identification strategy based on the rugged terrain that significantly influences the design and costs of constructing roads in Nepal, together with a new geospatial data, to find a positive impact of road on farmland values. A 1 percent decrease in distance to a road raises the market price of an agricultural plot by 0.1 to 0.25 percent. This increase in land value is underpinned by increased participation by households in agricultural markets, and improved farm production and incomes. The results also suggest that a decrease in the distance to a road contributes to the commercialization of agriculture, and it increases the use of fertilizer in agricultural production and reduces the unit cost of fertilizers.

Rural Roads and Local Economic Development

“…work generally demonstrated that rural roads are associated with large economic benefits by looking at their impact on agricultural land values (Jacoby, 2000;Shrestha, 2017), estimated willingness to pay for agricultural households (Jacoby and Minten, 2009), complementarities with agricultural productivity gains (Gollin and Rogerson, 2014), search and competition among agricultural traders (Casaburi et al, 2013), and agricultural productivity and crop choice (Sotelo, 2016). In an urban setting, Gonzalez-Navarro and Quintana-Domeque (2016) find that paving streets lead to higher property values and consumption.…”

Impact Evaluation of Transport Interventions:

“…(5) Agricultural performance can be strongly affected by transport connectivity. The adoption of improved varieties of rice was found to be increased by improved road connectivity in Bangladesh (Ali 2011), agricultural technology adoption was found to rise in India (Aggarwal 2014), and agricultural input use was found to be increased by road access in Nepal (Shrestha 2017). Increases in commercialization (agricultural sales) were also observed in the same studies.…”

“…Road surface improvements in Mexico were found to have increased property values by 16% and land values by 54% (Gonzalez-Navarro and Quintana-Domeque 2016). Agricultural land prices in Nepal were also found to increase with road development (Shrestha 2017).…”

Effects of Rural Electrification on Employment: A Comment on Dinkelman

“…By analogy with Dinkelman's intuition for electricity networks, the land gradient has been used prominently in the literature as an IV for the impacts of transportation infrastructure (see, for example, Donaldson 2018, Shrestha 2019, and Djemai 2018.…”

“…In this subsection, we show that the likelihood of having access to a road is as much driven by the land gradient as electricity access is and that both can similarly explain employment growth in the sample. To this end, we now use the land gradient as an IV for road access instead of electricity access (thereby following the intuition of Donaldson 2018, Shrestha 2019, and Djemai 2018. For that purpose, we take Dinkelman's model…”