Roads to the Market or the Town Hall? New Evidence from India’s PMGSY

We examine the impact of rural road connectivity on economic and novel governance outcomes in the context of the world’s largest rural road program, India’s PMGSY. Using a novel village-level survey designed around PMGSY’s rollout, we exploit quasi-random variation in road placement to estimate causal effects of connectivity on agricultural and labor markets as well as governance and political connectivity. We find evidence that roads support market access, as local producer prices increase by 1.3 SD and agricultural outputs diversify. Despite the improved agricultural output prices and options, labor shifts away from agriculture to casual work, suggesting improved non-agricultural market access. Interestingly, increases in casual labor are almost exclusively local to the connected village, and we find a decrease of short- and medium-term migration by 0.8 SD. Additionally, road connectivity increases local state presence, with a 1.1 SD increase in an index of official government visits and a 0.9 SD increase in an index of political connectivity, and leads to higher wages on government construction projects and lower prices in government shops. Our findings show that road leads to more vibrant and diverse rural economies.