Road Infrastructure and Rural Poverty in Ethiopia

Abstract

In the face of high population growth and declining natural resource base, tackling rural poverty necessitates an increase in overall factor productivity or a rise in the market rate of return of assets possessed by the poor. Towards achieving these objectives, the role of spatial integration of markets and the efficiency with which these markets operate are considerably important, as these factors shape the structure of incentives and the level of opportunities open to the rural poor. As a result, factors that hinder the spatial integration of markets and their efficient operation will have significant impact on rural poverty. In Ethiopia markets are often segmented mainly due to high transport cost associated with poor road infrastructure. The existing poor quality and low road density are expected to contribute to rural poverty through limiting the size of the market, increasing market risk (price volatility), widening the spatial prices gaps, reducing the market return to land and labour, inflating the profitability of new technologies and reducing the incentive to produce for market. This research endeavours to empirically substantiate if there is a robust link between farm income and the quality of road infrastructure farm households have access to as well as the pathways through which the effects of road on rural income are felt. The empirical result consistently showed that improving rural road access will have significant impact on rural income in general and the income of the poor in particular. The mechanisms by which road boosts rural income and reduce poverty are also found to work through narrowing down spatial price gaps, promoting technology adoption, boosting resource allocation efficiency and raising the market return to land and labour. The result also showed that the rural poor benefits from road induced income growth.