Estimating the Long-Term Impacts of Rural Roads: A Dynamic Panel Approach

37 Pages Posted: 20 Apr 2016

See all articles by Shahidur R. Khandker

Shahidur R. Khandker

World Bank - Development Research Group (DECRG)

Gayatri B. Koolwal

World Bank

Date Written: October 1, 2011

Abstract

Infrastructure investments are typically long-term. As a result, observed benefits to households and communities may vary considerably over time as short-term outcomes generate or are subsumed by longer-term impacts. This paper uses a new round of household survey as part of a local government engineering department's rural road improvement project financed by the World Bank in Bangladesh to compare the short-term and long-term effects of rural roads over eight years. A dynamic panel model, estimated by generalized method of moments, is applied to estimate the varying returns to public road investment accounting for time-varying unobserved characteristics. The results show that the substantial effects of roads on such outcomes as per capita expenditure, schooling, and prices as observed in the short run attenuate over time. But the declining returns are not common for all outcomes of interest or all households. Employment in the rural non-farm sector, for example, has risen more rapidly over time, indicating increasing returns to investment. The very poor have failed to sustain the short-term benefits of roads, and yet the gains accrued to the middle-income groups are strengthened over time because of changing sectors of employment, away from agriculture toward non-farm activity. The results also show that initial state dependence -- or initial community and household characteristics as well as road quality -- matters in estimating the trajectory of road impacts.

Keywords: Transport Economics Policy & Planning, Housing & Human Habitats, Economic Theory & Research, Rural Poverty Reduction, Rural Roads & Transport

Suggested Citation

Khandker, Shahidur R. and Koolwal, Gayatri B., Estimating the Long-Term Impacts of Rural Roads: A Dynamic Panel Approach (October 1, 2011). World Bank Policy Research Working Paper No. 5867, Available at SSRN: https://ssrn.com/abstract=1952496

Shahidur R. Khandker (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

Gayatri B. Koolwal

World Bank ( email )

United States

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