Roads, agriculture and welfare

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Ethiopian Development Research Institute and International Food Policy Research Institute (IFPRI/EDRI), Tenth International Conference on Ethiopian Economy, July 19-21, 2012. EEA Conference Hall

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Roads, agriculture and welfare

  1. 1. ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTERoads, Agriculture and Welfare:Evidence from a Quasi-Experimental Setting in Rural Ethiopia David Stifel – Lafayette College & IFPRI Bart Minten – IFPRI Bethlehem Koru – EDRI & IFPRI EEA Conference 2012 July 20, 2012 Addis Ababa 1
  2. 2. The Question: What are the benefits of rural feeder roads?
  3. 3. Measuring Benefits – Two Issues 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
  4. 4. 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
  5. 5. 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
  6. 6. Is the primary difference between communities due to transport costs? Percent of land holding area Median Median land Difficult Steep plot size Tan color holdings to plow slope (ha) (ha)Travel cost quintile Least remote 0.3 2 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 15Total 0.3 1.5 6.4 28.1 13Source: Authors’ calculations from Ethiopia Rural Transport Survey 2011
  7. 7. Crop Share (in total land area)
  8. 8. 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
  9. 9. Adjusted Cereal Yields 20 15Quintals / ha 10 5 0 0 20 40 60 80 100 Birr/Quintal Sorghum Millet Maize Teff
  10. 10. 2. Measuring Benefits• 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
  11. 11. 2. Measuring Benefits• The average benefits are...• where... This is just the area under the demand for transport tonnage curve.
  12. 12. Demand for Transport Tonnage12501000 500 kg 750 250 0 0 20 40 60 80 100 Transport Cost (Birr/kg) Total Freight Imported Consumption Agricultural Surplus Input Purchases
  13. 13. 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 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
  14. 14. 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
  15. 15. 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)
  16. 16. 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
  17. 17. 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
  18. 18. 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

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