The Social Rate of Return on Road Infrastructure Investments

A billion people live more than two kilometers from an all-season road, the vast majority of whom reside in emerging-market and developing economies (EMDEs), where the absence of paved roads hinders growth and development. Consistent with this shortage, we estimate that the median social rate of return to installing an additional kilometer of two-lane highway in EMDEs is 55 percent—roughly eight times the social rate of return on private capital in the US. The size and precision of the estimates vary widely across countries. But the eightfold excess social return on roads is, nevertheless, five times larger than the excess financial return on stocks in developing countries that once catalyzed the creation of emerging market equity as an asset class. The absolute and relative magnitudes of these excess returns thus suggest the possibility of substantial unrealized gains from reallocating developed-country savings toward public capital formation in EMDEs. We document these facts using a production function approach to estimate each country’s marginal product of public capital (MPX). We then pair these estimates with country-specific, hedonic road-construction prices (Px) from the Roads Cost Knowledge System to compute social rates of return (Rx). Because macro estimates face well-known identification and measurement challenges, we interpret our findings alongside complementary evidence on financial and micro-level returns.