The Role of Public Infraestructure in Market Development in Rural Peru

This Study provides a conceptual framework to study the impact of rural infrastructure investment in market development and in the enhancement of income generating opportunities for the poor in rural Peru. The study uses descriptive methods and regression analysis together with relatively new impact evaluation techniques, like propensity score matching, to understand the causal paths through which the access to new or improved infrastructure services affect the livelihood strategies and livelihood outcomes of rural households. The data sources included in this study include regional time series data, several cross-section household level data sets coming from rural representative Living Standard Measurement Surveys; a household panel data set coming from the same source, together with specialized surveys developed by the author. The analysis shows that there are important complementarities in rural infrastructure investment. That is, even if any particular infrastructure investment (related to roads, electricity, telecommunication, water, or sanitation services) may be subject to diminishing returns, if done in isolation, this effect can be overcome if it is done in combination with other investments. In this way it is possible to get a sustained growth effect on rural incomes from infrastructure investment. The study shows that infrastructure investments reduce transaction costs and enhances the opportunities for spatial arbitrage, paving the way for improving market efficiency. However, the study warns that efficiency and equity gains may not occur simultaneously, because those that are better off in rural areas may obtain higher returns to infrastructure investments because of a larger private asset base or because of a better access to other public infrastructure.