Are Schooling and Roads Complementary? Evidence from Rural Indonesia
This paper examines the impact of spatial connectivity on household income growth and non-agriculture labor supply, combining household panel data and village census in Indonesia during the period of 1995-2007. Empirical results show that the impacts of improved local road quality on income growth and the transition to non-agricultural labor markets depends on household education and distance to economic centers. In particular, post-primary education significantly increases the benefit from the improvement of local spatial connectivity in remote areas, promoting labor transition to non-agricultural sectors. Education and local road quality are complementary, mutually increasing non-agricultural labor supply and income in remote areas.
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