Spatial Integration, Agricultural Productivity, and Development: A Quantitative Analysis of Ethiopia’s Road Expansion Program

I study the effects of Ethiopia's 1996-2014 road expansion program on aggregate and local agricultural productivity and development outcomes. I combine a quantitative spatial framework with a novel district-level panel data set on agricultural production and transport costs. I estimate transport costs between district centers and domestic crop markets accounting for the volume and quality of the road network, and the topography of the terrain. The model features multiple rural locations, where delivering crops to market, as well as accessing intermediate inputs is subject to location-good-specific transport costs. The spatial heterogeneity of transport costs affects the distribution of production and mobile inputs across locations, and the allocation of land across crops within locations. I calibrate the model to the 1996 spatial agricultural production structure of Ethiopia, and then change transport costs to their 2014 levels. The model implies a substantial increase of 13.6% in the aggregate real yield, which rises by 20% with the direct resource savings from lower transport costs. These gains account for about 10% of the overall yield gain in the data over 1996-2014. The model also delivers a U-shaped pattern of yield gains across districts with respect to transport costs, similar to the one observed in the data.