MACRO: Spatial Integration and Agricultural Productivity: Quantifying the Impact of New Roads; Professor Tasso ADAMOPOULOS (York University)

Abstract

I study the effects of Ethiopia's 1996-2014 road expansion program on agricultural productivity and structural change. I combine a quantitative spatial framework of structural change with a novel district level panel data set on agricultural production and transport costs. I estimate transport costs between districts and domestic crop markets accounting for the volume and quality of the road network, and the topography of the terrain. The model features multiple rural locations, where delivering crops to market, as well as accessing intermediate inputs is subject to location-good-specific transport costs. There are frictions to local land markets and barriers to the mobility of labor across locations. Conditional on these distortions, the} spatial heterogeneity of transport costs affects the distribution of production and mobile inputs across locations, and the allocation of land across crops within locations. I calibrate the model to the 1996 spatial agricultural production structure of Ethiopia, and then change transport costs alone to their 2014 levels. The model implies a substantial increase of 14.7% in the aggregate real yield, which rises by 20% with the direct resource savings from lower transport costs, and a decrease in the share of labor in agriculture by 5.5 percentage points. These gains account for about 10% of the overall yield gain in the data over 1996-2014. The model also delivers a U-shaped pattern of yield gains across districts with respect to transport cost changes, similar to the one observed in the data. This pattern across districts is attributed to the extent of alignment of districts' changes in absolute and comparative advantage implied by the transport cost changes.