ETHIOPIAN DEVELOPMENT                                                 RESEARCH INSTITUTERoads, Agriculture and Welfare:Evi...
The Question: What are the benefits of rural feeder roads?
What do we know?Improved rural infrastructure affects...•    Transport costs•    Input costs•    Timely input availability...
Measuring Benefits – Two Issues1.       The measure of benefits     •        Impacts (accessibility, quality, mobility)   ...
1. How to handle causation?•   Panel data     Dercon et al., 2009•   Difference-in-differences     Mu and van de Walle, ...
1. How we handle causation…•       Quasi-Experiment•       Sample area selected purposefully    o      Homogeneous region ...
Transport Costs•       Donkey costs (Birr/kg)    o      Cost of renting donkey    o      Weight donkey can carry•       Ec...
Average Travel Times andTransport Costs to the Market Town                          Travel Time   Transport Cost          ...
Is this a Quasi-Experiment?•       Is the primary difference between communities        due to transport costs?•       Com...
Characteristics of Agricultural Land                                                Percent of Land Holding               ...
Altitude of sample households      2500      2000        1500    Meters 1000 500      0               0                20 ...
Land Productivity•       What crops?    o     Sorghum    o     Millet    o     Maize    o     Black/mixed teff•       Coun...
Modern Input Use                                   Percent of households using…                          Chemical Fertiliz...
Cereal Yields by Transport Cost                                                Sorghum                                    ...
The Setting – Stylized Facts  Annual Household Per Capita Consumption          6000  4000   Birr per person 2000     0    ...
The Setting – Stylized Facts                                  Schooling by Transaction Costs                              ...
The Setting – Stylized Facts          Food Insecurity
2. Measuring Benefits•       Previous outcomes    o     Indicators of cost of remoteness    o     Indicators of benefits o...
2. Measuring Benefits•       Thought experiment...        Compensate a remote household just enough        such that indif...
2. Measuring Benefits•   Let household income be defined as...•   Households maximize income & utility…
2. Measuring Benefits•   Benefit is defined by...•   How can we estimate μτ ???
2. Measuring Benefits•   Differentiating the identity gives us...
2. Measuring Benefits•   These are just marginal changes,    but if we sum them up (i.e. integrate)...
2. Measuring Benefits•   We are interested in the average benefits...    This is just the area under the demand for    tra...
Measuring Willingness to Pay for  Transport Cost Reduction
Demand for Transport Tonnage      1250      1000      750 kg      500      250      0             0   20            40    ...
Demand for Transport Tonnage                                                   Controlling for       Transport Cost       ...
Non-Farm Earnings                    Pct. of HH         Median NF     Percent difference in HH                      with  ...
Benefits Estimate•       Most remote households as accessible as the        least remote•       ↓ transport costs by 75 Bi...
Benefit EstimatesFor households in                  Benefit as percent ofeach of the following            household consum...
Benefits vs. Costs•       Cost ≈ 28 million Birr          800,000 Birr / km of gravel road          35 km•       Benefit...
Concluding Remarks•    Estimate benefits of a rural feeder road•    Issues:    1.       Causality (endogenous road placeme...
Concluding Remarks•       Benefit to most remote HH ≈ 60% of HH consumption•       Costs of construction recovered in 3 ye...
Thank you
Roads, Agriculture and Welfare evidence from a quasi experimental setting in rural ethiopia
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Roads, Agriculture and Welfare evidence from a quasi experimental setting in rural ethiopia

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Ethiopian Development Research Institute (EDI) and International Food Policy Research Institute (IFPRI). Semiar Series, March 15, 2012

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Roads, Agriculture and Welfare evidence from a quasi experimental setting in rural ethiopia

  1. 1. ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTERoads, Agriculture and Welfare:Evidence from a Quasi-Experimental Setting in Rural Ethiopia David Stifel – Lafayette College & IFPRI ESSP-II Bart Minten – IFPRI ESSP-II Bethlehem Koro – EDRI & IFPRI ESSP-II Ethiopian Development Research Institute March 15, 2012 Addis Ababa 1
  2. 2. The Question: What are the benefits of rural feeder roads?
  3. 3. What do we know?Improved rural infrastructure affects...• Transport costs• Input costs• Timely input availability• Agricultural 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. 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 placement  High productivity  Road constructed ?  Road constructed  High productivity ?
  5. 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, 2005 Rely on estimators to do the work
  6. 6. 1. How we handle causation…• Quasi-Experiment• Sample area selected purposefully o Homogeneous region o Except for transport costs• Households’ circumstances differ because of different transport costs...• ...not because of land characteristics, etc. Let the data to the work
  7. 7. Transport Costs• Donkey costs (Birr/kg) o Cost of renting donkey o Weight donkey can carry• Economic transport costs o Include the opportunity cost of time
  8. 8. Average Travel Times andTransport Costs to the Market Town Travel Time Transport Cost (hours) (Birr/Quintal)Transport Cost Quintile Least Remote 1.5 18.2 Quintile 2 3.6 40.2 Quintile 3 5.2 52.5 Quintile 4 6.0 60.4 Most Remote 6.5 73.4Total 4.5 48.4
  9. 9. Is this a Quasi-Experiment?• Is the primary difference between communities due to transport costs?• Compare... o Land characteristics o Land productivity
  10. 10. Characteristics of Agricultural Land Percent of Land Holding Area Median Land Median Plot Holdings Tan Difficult Steep Size (HA) (HA) Color to Plow SlopeTravel Cost Quintile Least Remote 0.3 2.0 9.5 17.6 6.3 Quintile 2 0.3 1.8 7.4 27.8 16.4 Quintile 3 0.3 1.4 8.4 25.8 12.8 Quintile 4 0.3 1.1 3.1 33.1 15.3 Most Remote 0.3 1.3 3.5 37.9 15.0Total 0.3 1.5 6.4 28.1 13.0
  11. 11. Altitude of sample households 2500 2000 1500 Meters 1000 500 0 0 20 40 60 80 100 Transport Costs (Birr/Quintal) bandwidth = .8
  12. 12. Land Productivity• What crops? o Sorghum o Millet o Maize o Black/mixed teff• Counfounding factors? o Weather and pest shocks o Inputs – labor, fertilizer, herbicides, Improved seeds
  13. 13. Modern Input Use Percent 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
  14. 14. Cereal Yields by Transport Cost Sorghum Millet 20 20 15 15Quintals / hectare Quintals / hectare 10 10 5 5 0 0 0 20 40 60 80 100 0 20 40 60 80 100 Transport Costs (Birr/Quintal) Transport Costs (Birr/Quintal) Unadjusted Adjusted for weather Unadjusted Adjusted for weather Adjusted for weather and inputs Adjusted for weather and inputs Maize Black/Mixed Teff 20 20 15Quintals / hectare Quintals / hectare 15 10 10 5 5 0 0 0 20 40 60 80 100 Transport Costs (Birr/Quintal) 0 20 40 60 80 100 Transport Costs (Birr/Quintal) Unadjusted Adjusted for weather Unadjusted Adjusted for weather Adjusted for weather and inputs Adjusted for weather and inputs
  15. 15. The Setting – Stylized Facts Annual Household Per Capita Consumption 6000 4000 Birr per person 2000 0 0 20 40 60 80 100 Transport Costs (Birr/quintal) Total Food Non-Food
  16. 16. The Setting – Stylized Facts Schooling by Transaction Costs Adults (age 15-30) Enrollment rate Percent with Average years of schooling (ages 5-15) some schooling Full sample Those with schoolingTransport Cost Quintiles 41.9 Least Remote 41.9 1.8 4.4 39.1 Quintile 2 32.8 1.6 4.8 46.5 Quintile 3 37.0 1.7 4.7 33.2 Quintile 4 40.7 1.6 4.0 32.4 Most Remote 36.8 1.6 4.5 Total 36.5 38.0 1.7 4.5
  17. 17. The Setting – Stylized Facts Food Insecurity
  18. 18. 2. Measuring Benefits• Previous outcomes o Indicators of cost of remoteness o Indicators of benefits of reduced transport costs• Our measure… Households’ willingness-to-pay for reduced transport costs (Jacoby and Minten, 2009)
  19. 19. 2. Measuring Benefits• Thought experiment... 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  Willingness-to-pay
  20. 20. 2. Measuring Benefits• Let household income be defined as...• Households maximize income & utility…
  21. 21. 2. Measuring Benefits• Benefit is defined by...• How can we estimate μτ ???
  22. 22. 2. Measuring Benefits• Differentiating the identity gives us...
  23. 23. 2. Measuring Benefits• These are just marginal changes, but if we sum them up (i.e. integrate)...
  24. 24. 2. Measuring Benefits• We are interested in the average benefits... This is just the area under the demand for transport tonnage curve.
  25. 25. Measuring Willingness to Pay for Transport Cost Reduction
  26. 26. Demand for Transport Tonnage 1250 1000 750 kg 500 250 0 0 20 40 60 80 100 Transport Cost (Birr/kg) Total Freight Imported Consumption Agricultural Surplus Input Purchases
  27. 27. Demand for Transport Tonnage Controlling for Transport Cost Simple Model landholdings Difference Coeff t-stat Coeff t-stat Diff z-statTotal Freight Transport cost per quintal -7.9 -9.52 -6.9 -8.51 -1.0 -0.86 Log of HH landholdings (HA) 190.6 10.46Agricultural Surplus Transport cost per quintal -3.5 -6.06 -2.4 -4.22 -1.1 -1.31 Log of HH landholdings (HA) 143.7 11.02Imported Consumption Transport cost per quintal -2.1 -4.39 -2.1 -4.06 0.0 0.00 Log of HH landholdings (HA) 16.0 1.41Input Purchases -20.7 Transport cost per quintal -2.6 2 -2.5 -20.79 -0.1 -0.80 Log of HH landholdings (HA) 33.5 12.43
  28. 28. Non-Farm Earnings Pct. of HH Median NF Percent difference in HH with earnings* expenditures between those NF earnings (Birr) w/ and w/o NF earningsLeast Remote 7 1,000 20.0Quintile 2 12 1,300 26.1Quintile 3 13 1,200 22.8Quintile 4 14 1,180 22.2Most Remote 17 1,102 18.4Total 12 1,102 22.1* Among those with non-farm earnings
  29. 29. Benefits Estimate• Most remote households as accessible as the least remote• ↓ transport costs by 75 Birr / quintal• Benefit ≈ 3,300 Birr per year o 48% due to ↑ agric surplus prices o 42% due to ↓ consumption prices
  30. 30. Benefit EstimatesFor households in Benefit as percent ofeach of the following household consumptionevenly spaced gridpoints Uncorrected Adjusted* 2nd 2.0 2.0 3rd 5.4 5.3 4th 6.5 6.5 5th 6.7 6.7 6th 7.4 7.2 7th 17.2 16.9 8th 23.5 23.0 9th 53.0 51.8 Most remote 60.5 57.6Average for all households 9.3 9.1* Adjusted for landholdings
  31. 31. Benefits vs. Costs• Cost ≈ 28 million Birr  800,000 Birr / km of gravel road  35 km• Benefits ≈ 10 million Birr per year  1,930 Birr benefit on average  5,180 households in survey areaThree years for accrued benefits to exceed cost
  32. 32. Concluding Remarks• Estimate benefits of a rural feeder road• Issues: 1. Causality (endogenous road placement) o Quasi-experimental data set 2. What benefit measure to use o Willingness to pay for ↓ transport cost
  33. 33. Concluding Remarks• 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 o Only this study area, but informative nonetheless
  34. 34. Thank you

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