Infrastructure Agriculutre And Welfare In Rural Ethiopia
Infrastructure, Agricultureand Welfare in Rural Ethiopia David Stifel Lafayette College IFPRI Addis Ababa Symposium on Ultra-Poverty Institute for International Economic Policy Washington, DC, 22 March 2012 1
The Question:What are the benefitsof rural roads?Punchlines:3.Wholesale marketingmargins are fallingalong with transportcosts.4.Annual benefits inour study area areapprox 1/3 of the costof constructing a feederroad.
I. Trunk Roads• Our analysis focuses on trade of cereals between wholesale markets• Monthly data from 31 wholesale markets across Ethiopia over the last decade• Complemented with a survey of traders, brokers and truck drivers in these 31 markets (or surroundings) in January 2012• Why??? Margins are falling Affect both urban & rural poor
2. Rural Feeder Roads1. The measure of benefits • Willingness to pay – equivalent variation2. Endogenous road placement • Quasi-Experiment
How is it a 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.
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
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
Is land equally productive in the sample area?• What crops? o Sorghum o Millet o Maize o Black/mixed teff• Confounding factors? o Weather and pest shocks o Inputs – labor, fertilizer, herbicides, Improved seeds
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
2. Measuring Benefits• Households’ willingness-to-pay for reduced transport costs (Jacoby and Minten, 2009) 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
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
Benefits Estimate• 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)
Benefit EstimatesFor households ineach of the following Benefit as percent ofevenly spaced gridpoints household consumption 2nd 2.0 3rd 5.4 4th 6.5 5th 6.7 6th 7.4 7th 17.2 8th 23.5 9th 53.0 Most remote 60.5Average for all households 9.3* Adjusted for landholdings Remote HH will benefit the most.
Consumption & Remoteness 6000 4000 Birr per person2000 0 0 20 40 60 80 100 Transport Costs (Birr/quintal) Total Food Non-Food
Benefits vs. Costs• 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 areaThree years for accrued benefits to exceed cost
Concluding Remarks• Benefits of rural roads in Ethiopia – Highlight the effects on the poor• Trunk roads – Lower transport costs & marketing margins – Urban poor in deficit areas – Rural producers in surplus areas• Feeder roads – Payoffs are high (provided the roads last) – Benefits disproportionately benefit remote households – Remote households are poorer