A GLM|LIC research project conducted by economists Sam Asher (World Bank) and Paul Novosad (Dartmouth College) evaluates the impacts of India’s $40 billion national rural road construction program (PMGSY) on village labour and goods markets.
Prior research suggested that road infrastructure benefited rural economies in a broad range of ways, but few of these studies were able to decisively address the question of causality, due to the endogeneity of road placement. The high costs and potentially large benefits of infrastructure investments mean that the placement of new roads is typically correlated with both economic and political characteristics of locations. This potentially biases prior estimates. GLM|LIC researchers overcame this challenge by taking advantage of an implementation rule that targeted roads to villages with population exceeding certain thresholds, causing villages just above the population threshold to be 22 percentage points more likely to receive a road.
They found no evidence that roads affected agriculture investment or production or household consumption. They do observe a substantial labour market reallocation: the number of individuals working in agriculture declines substantially. However, employment in village non-farm establishments expands only slightly, suggesting that people are using the roads to access wage markets outside of the village. Their results make clear that transportation infrastructure alone is not going to lead to thriving villages. More likely, remote villages are poor places both for agriculture and for non-farm work, and development is best facilitated by making it easier for people to access external labour markets.
Read more about the GLM|LIC project and the Policy Brief No. 30 “Rural Roads and Local Economic Development”.