Rural road quality, farm efficiency and income in Ethiopia. Development working papers series 3. Working paper No. 01/15

Abstract

Small scale farmers in Ethiopia are already operating on their land frontier and the scope for an increase in production and rural income should come, among others, through improvement in technical and allocative efficiency. Although the stake of efficiency improvement is substantial, a number of empirical studies undertaken to identify the determinants of efficiency however are few. Moreover, although road infrastructure is among key public goods that significantly influences the farm level economic efficiency, empirical studies that have considered its role in farm efficiency analysis is scarce. This research investigated the link between the quality of rural road and farm level allocative and technical efficiency as well as the impact of inefficiency on farm income. The result showed that households that have all weather road access are 16% technically and two times allocatively more efficient. Both allocative and technical inefficiencies reduce income; the adverse impact of technical inefficiency on income however is stronger. Although household specific factors have contributed to the observed inefficiencyin most cases it is exogenously driven, namely, it is a rational response to market imperfection and risks. Interventions that reduce market and production risks will increase crop output and farm income.