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Road Maintenance and Local Economic Development: Evidence from Indonesia's Highways

Author

Listed:
  • Paul J. Gertler

    (University of California-Berkeley)

  • Marco Gonzalez-Navarro

    (University of California-Berkeley)

  • Tadeja Gracner

    (RAND)

  • Alexander D. Rothenberg

    (Syracuse University)

Abstract

This paper estimates the local welfare impacts of highway maintenance investments. We instrument road quality exploiting IndonesiaÕs two-step budgeting process for allocating funding to local road authorities. Using comprehensive data on road quality from 1990à 2007, we find evidence that better roads help manufacturers create new jobs, enabling worker transitions out of informal employment, and increasing labor income. Road quality also changes the cost of living, reducing perishable food prices but also raising housing prices. We estimate the elasticity of household welfare with respect to road quality to be 0.09 and the benefit/cost ratio for road maintenance investments to be 1.8.

Suggested Citation

  • Paul J. Gertler & Marco Gonzalez-Navarro & Tadeja Gracner & Alexander D. Rothenberg, 2023. "Road Maintenance and Local Economic Development: Evidence from Indonesia's Highways," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper2327, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    • Handle: RePEc:ays:ispwps:paper2327
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    File URL: https://icepp.gsu.edu/files/2023/12/paper2327.pdf
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    2. Klaus W. Deininger & Daniel Ayalew Ali, 2024. "Land Price Effects of Informality, Farm Size, and Land Reform : Evidence from More Than One Million Transactions in Ukraine," Policy Research Working Paper Series 11013, The World Bank.
    3. Klaus Deininger & Aparajita Goyal, 2025. "Land Policies and Institutions for Equitable and Resilient Growth in Africa," The World Bank Research Observer, World Bank, vol. 40(1), pages 1-57.
    4. Bock, Margaret & Cardazzi, Alexander & Humphreys, Brad R., 2025. "Where the rubber meets the road: Pavement damage reduces traffic safety and speed," Journal of Urban Economics, Elsevier, vol. 149(C).
    5. Liu, Zhiyong & Lv, Buke & Liu, Zhaoxuan & Li, Wenshuai & Fu, Xingbang & Yao, Enjian, 2025. "Impact of Spatio-Temporal evolution of freeway networks on Socio-Economic Dynamics: A case study from Fujian, China," Transportation Research Part A: Policy and Practice, Elsevier, vol. 198(C).
    6. Luisito Bertinelli & Evie Graus & Jean-François Maystadt & Silvia Peracchi, 2025. "Roads and child health in Sub-Saharan Africa," LIDAM Discussion Papers IRES 2025017, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    7. Deininger, Klaus & Ali, Daniel A., 2025. "Land Price Effects of Informality, Farm Size, and Land Reform: Evidence from More Than One Million Transactions in Ukraine," 2025 AAEA & WAEA Joint Annual Meeting, July 27-29, 2025, Denver, CO 361025, Agricultural and Applied Economics Association.
    8. TANAKA,Kiyoyasu, 2024. "From Walking to Driving: Economic Impact of Mountain Roads," IDE Discussion Papers 949, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    9. Ahmed, Fatma, 2025. "Ice roads and income in remote indigenous communities of Canada," World Development Perspectives, Elsevier, vol. 37(C).
    10. Pérez-Sebastián,Fidel & Serrano Quintero,Rafael & Steinbuks,Jevgenijs, 2023. "Spatial Misallocation of Complementary Infrastructure Investment : Evidence from Brazil," Policy Research Working Paper Series 10650, The World Bank.
    11. Rothenberg, Alexander D. & Wang, Yao & Chari, Amalavoyal, 2025. "When regional policies fail: An evaluation of Indonesia’s Integrated Economic Development Zones," Journal of Development Economics, Elsevier, vol. 176(C).
    12. Camilo Acosta & Luis Baldomero-Quintana, 2024. "Quality of communications infrastructure, local structural transformation, and inequality," Journal of Economic Geography, Oxford University Press, vol. 24(1), pages 117-144.
    13. Pkhikidze,Nino, 2024. "Connectivity, Road Quality, and Jobs : Evidence from Armenia," Policy Research Working Paper Series 10847, The World Bank.
    14. Stringer, Thomas & Clavel, Esteban Ricardo García & Burelo, Manuel, 2025. "Gender-specific impacts of road accessibility on rural development," Journal of Transport Geography, Elsevier, vol. 125(C).
    15. André De palma, 2025. "Managing Road Capacity: Maintenance, Tolls, and Multi-Level Governance," Thema Working Papers 2025-14, THEMA (Théorie Economique, Modélisation et Applications), CY Cergy-Paris University, ESSEC and CNRS.
    16. Peng, Cong & Wang, Yao & Chen, Wenfan, 2024. "Roads to development? Urbanization without growth in Zambia," LSE Research Online Documents on Economics 126771, London School of Economics and Political Science, LSE Library.
    17. Missbach, Leonard & Steckel, Jan Christoph & Renner, Sebastian & Kraus, Sebastian, 2024. "Coal-fired power plants and industrial development," EconStor Preprints 300209, ZBW - Leibniz Information Centre for Economics.
    18. Ujjayant Chakravorty & Xiangzheng Deng & Yazhen Gong & Martino Pelli & Qian Zhang, 2023. "A Tale of Two Roads: Groundwater Depletion in the North China Plain," CIRANO Working Papers 2023s-17, CIRANO.

    More about this item

    JEL classification:

    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning
    • J43 - Labor and Demographic Economics - - Particular Labor Markets - - - Agricultural Labor Markets
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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