Road Infrastructure and Firm Level Productivity Dynamics in Ethiopia

High transport cost is one of the major constraints of Africa’s competitiveness in the world market and economic growth. The Ethiopian government has made road sector development central in its development strategy and implemented two large-scale road sector development programs during 1997-2009. During this period, the road density per 1000 km2 has grown by more than 70% and the fraction of roads in good and serviceable conditions has also increased from 22% to 54%. The current study investigates how these improvements in the road transport sector shaped the enterprise performance of the Ethiopian manufacturing sector using a firm level panel dataset and GIS based information on road networks. The results indicate that, controlling for unobserved firm and location specific characteristics, improved road accessibility is associated with higher firm performance. The results are particularly robust for improvements in travel distance and area accessible within an hour drive from a town firms are located in. We also find that productivity effects are larger for large firms that are capable of exploiting market expansion.