Transport infrastructure and agricultural markets: Evidence from India's NS-EW Highway

Farmers in low-income countries depend on crop prices for their livelihoods. These prices often result from transactions with more powerful intermediary buyers. Large transport projects can significantly alter the transport cost environment for both farmers and buyers, and thus reshape agricultural markets for some of the world’s most vulnerable farmers. In this paper, I investigate the effect of India’s North-South-East-West highway (NS-EW) on rice, wheat, and soyabean prices in the years 2005-2016. Estimating the impact of road projects is challenging because of fundamental endogeneity issues in road construction. However, I exploit a difference-in-differences model with an instrumental variable that allows for identification of the causal effect of highway construction on the prices received by farmers in local markets. The “treatment” of the NS-EW raised prices at rice markets closer to the corridor relative to more distant markets by approximately 4% of the median rice price. This result is robust to modifications of the “before” and “after” cut-off dates in the difference-in-differences, exclusion of markets near urban centres, and a placebo difference-in-differences (using only the “before” years).