Roads, Credit, and Crops: Infrastructure- Induced Reallocation in Colombia

Transportation infrastructure in remote areas can transform rural economies, but its effects on credit markets and agricultural production remain poorly understood. By analyzing geolocated data on Colombia’s national road expansion and exploiting its staggered implementation, I show that road construction reduces governmentsupported productive credit by 13 percent while leaving total loan balance unchanged, indicating credit substitution from government programs toward private commercial lending rather than reduced credit access. Roads trigger substantial agricultural transformation: coca cultivation declines by 51 percent while cash crops expand by 13 percent, demonstrating that improved connectivity reshapes both production choices and financing needs. The effects are strongest in poorer, more rural, and initially isolated municipalities, with productive credit declining 70 percent more in below-median GDP areas, suggesting that infrastructure’s transformative impacts depend critically on baseline connectivity constraints. I also observe heterogeneous responses across agricultural suitability, with credit substitution concentrated in areas where roads make legal crops newly viable relative to coca. Finally, I find no systematic role for prior conflict exposure, indicating that infrastructure reshapes economic behavior through market integration rather than conflict legacies.