CHAPTER 3
In addition to raising incomes and stimulating employ- ment, improved road infrastructure has also been shown to lead to a reduction in the prices of goods. This is because roads lower transport costs, which not only reduce the price companies pay for inputs, but also allow companies to expand their markets and deliver their products at a lower cost (Wan et al., 2022). Improved road infrastructure therefore also stimulates economic growth and welfare by enabling higher levels of consumption through reduced prices (see box below).
Given its importance to development, investing in the transport sector is essential for fostering economic growth in developing countries and for spreading growth across different regions. A 2017 study by the International Labour Organization (ILO) highlights how a 1 percent increase in the stock of roads leads to a 0.04 to 0.12 percent increase in GDP per year (Vaidya, 2017). In addition to roads, which are the focus of this chapter, land transportation infrastructure also includes railways. While railways can offer lower emissions, higher speeds, more safety and lower maintenance and marginal costs over long distances than roads, they are less flexible in terms of offering direct routes to final destinations. Compared to road construction, railways also require a much higher initial investment, which can prove prohibitive for devel- oping countries. The high capital cost usually implies that railways are cost-effective in areas with sufficient density and therefore passenger volume, or along routes with significant freight traffic. A recent study (Zheng et al., 2024) concludes that the construction and improvement of roads, particularly of local and regional roads, is essen- tial for the development of countries with relatively low levels of urbanization, interconnected major urban centers, and exports - which are characteristics of many low- and low-middle-income countries. With increasing urbaniza- tion and exports, investments in major roads, highways and railways grow in importance for economic develop- ment. Around the world, roads remain the dominant mode of transport and are among the most heavily used types of infrastructure, accounting for about 80 percent of the distance travelled for individuals and 50 percent for goods (Pulido, 2018).
ETHIOPIA COUNTRY CASE
Nakamura et al. (2019) examine the effects of signifi- cant rural road development in Ethiopia on welfare and economic outcomes, concluding that it has notably improved household welfare and enhanced resilience to severe droughts. Specifically, rural road access led to an average increase in household consumption of 16.1 percent from 2012 to 2016, equivalent to an annual growth rate of 3.8 percent. The benefits were most pronounced in the most isolated communities, where household consumption rose by as much as 27.9 percent. Additionally, in areas most impacted by the El Niño drought, the likelihood of falling into poverty was 14.4 percent lower from 2012 to 2016 for communities with rural road access. A second study on rural road expansion in Ethiopia shows similar positive welfare effects. Kebede (2021) estimates that road expansion led to an average 13 percent increase in real agricultural incomes. 6
6 See Foster et al., 2023
7 The World Banks’ Rural Access Index, last collected for all countries in 2006, showed that more than 1 billion people lacked access to all-weather roads within 2 km of their residence (see Roberts et al., 2006). 8 Source: World Bank Rural Access Index. Covered countries in Sub-Saharan Africa: Burundi, Chad, Ethiopia, The Gambia, Kenya, Lesotho, Liberia, Mada- gascar, Malawi, Mali, Mozambique, Nigeria, Rwanda, Sierra Leone, Somalia, South Africa, Tanzania, Uganda, Zambia (values from 2010 to 2021). 9 It is important to note that some countries show high road density in terms of population due to very low population density (e.g. Canada, Namibia, Mongolia, Australia).
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