This study analyzes the impacts of the recent rural road development in Ethiopia on welfare and economic outcomes. The identification of the impacts relies on a difference-in-differences matching approach, taking advantage of the nationally representative household survey and the original road database, both of which are panel data spanning between 2012 and 2016.
The results of the econometric analysis overall suggest that Ethiopia's recent rural road development has substantially increased household welfare and supported households in coping with the recent severe droughts. This study estimates that rural roads increased, on average, household consumption by 16.1 percent between 2012 and 2016 (or 3.8 percent per year). The effects of rural road development were largest in the most remote communities, as it increased household consumption by 27.9 percent. Furthermore, in the communities most affected by the El Niño drought, the likelihood of falling into poverty was 14.4 percent lower between 2012 and 2016 if the community was connected by a rural road. Taken together, the results suggest that, by connecting remote communities to markets, rural roads have substantially increased the welfare and resilience of rural households in shock-prone environments.