Despite a broad consensus that high transportation costs are a large barrier to economic development, many of the world's poor live in rural communities without paved roads, impeding their access to outside markets and public services. The high cost of roads means that the tradeoffs are steep in terms of other public goods and services.
Nevertheless, the impact of rural roads on economic activity has proven difficult for economists to assess, due to both data limitations and challenges arising from internal road placement. Trade theory provides a valuable framework for thinking about the impact of a reduction in transportation costs, but the response of migration, employment growth, and structural transformation may depend on local conditions.
In this project, we analyse the impacts of India’s large-scale rural road construction program, the Prime Minister’s Village Road Program (Pradhan Mantri Gram Sadak Yojana, or PMGSY), under which over 100,000 villages received new roads between 2001 and 2011.
- We are collecting a unique dataset containing village-level socio-economic outcomes across all of rural India, to our knowledge the first of its kind in terms of scale and depth. These outcomes include the industrial structure of villages as measured by the full set of non-farm establishments, household assets, and income, as well as education and occupation.
- Using these data, we can test a wide range of theories about how patterns of comparative advantage change in response to a dramatically lower cost of transporting goods and people to the villages where the poorest people live.
- Importantly, we can also provide estimates of the local economic impacts of rural roads that are well-identified and have broad external validity.
Our findings will help policymakers in at least three ways:
- We will be able to assess the extent to which transportation constraints are a major factor for rural economic development.
- Our estimates will help policymakers trade off investments in roads versus other uses for their money.
- Because of the scale of this project, we hope to shed light on where investments in rural roads will have the highest returns.