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

1. ETHIOPIAN DEVELOPMENT
RESEARCH INSTITUTE
Roads, 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. The Question:
What are the
benefits of rural
feeder roads?

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. Measuring Benefits – Two Issues
1. The measure of benefits
• Impacts (accessibility, quality, mobility)
• Savings in transport costs
• Income / Consumption / Poverty impacts
2. Reverse causality
• Non-random road placement
 High productivity  Road constructed ?
 Road constructed  High productivity ?

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. 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

8. 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

9. Average Travel Times and
Transport 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 73.4
Total 4.5 48.4

10. Is this a Quasi-Experiment?
• Is the primary difference between communities
due to transport costs?
• Compare...
o Land characteristics
o Land productivity

11. Characteristics of Agricultural Land
Percent of Land Holding
Area
Median Land
Median Plot Holdings Tan Difficult Steep
Size (HA) (HA) Color to Plow Slope
Travel 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 15.0
Total 0.3 1.5 6.4 28.1 13.0

12. Altitude of sample households
2500
2000
1500
Meters
1000 500
0
0 20 40 60 80 100
Transport Costs (Birr/Quintal)
bandwidth = .8

13. 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

14. 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

15. Cereal Yields by Transport Cost
Sorghum Millet
20
20
15
15
Quintals / 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
15
Quintals / 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

16. 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

17. 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 schooling
Transport 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

18. The Setting – Stylized Facts
Food Insecurity

19. 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)

20. 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

21. 2. Measuring Benefits
• Let household income be defined as...
• Households maximize income & utility…

22. 2. Measuring Benefits
• Benefit is defined by...
• How can we estimate μτ ???

23. 2. Measuring Benefits
• Differentiating the identity gives us...

24. 2. Measuring Benefits
• These are just marginal changes,
but if we sum them up (i.e. integrate)...

25. 2. Measuring Benefits
• We are interested in the average benefits...
This is just the area under the demand for
transport tonnage curve.

26. Measuring Willingness to Pay for
Transport Cost Reduction

27. 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

28. Demand for Transport Tonnage
Controlling for Transport Cost
Simple Model landholdings Difference
Coeff t-stat Coeff t-stat Diff z-stat
Total Freight
Transport cost per quintal -7.9 -9.52 -6.9 -8.51 -1.0 -0.86
Log of HH landholdings (HA) 190.6 10.46
Agricultural Surplus
Transport cost per quintal -3.5 -6.06 -2.4 -4.22 -1.1 -1.31
Log of HH landholdings (HA) 143.7 11.02
Imported Consumption
Transport cost per quintal -2.1 -4.39 -2.1 -4.06 0.0 0.00
Log of HH landholdings (HA) 16.0 1.41
Input 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

29. 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 earnings
Least Remote 7 1,000 20.0
Quintile 2 12 1,300 26.1
Quintile 3 13 1,200 22.8
Quintile 4 14 1,180 22.2
Most Remote 17 1,102 18.4
Total 12 1,102 22.1
* Among those with non-farm earnings

30. 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

31. Benefit Estimates
For households in Benefit as percent of
each of the following household consumption
evenly 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 57.6
Average for all households 9.3 9.1
* Adjusted for landholdings

32. 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 area
Three years for accrued benefits to exceed cost

33. 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

34. 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

35. Thank you