WEAI/AERE 2012 - Individual Paper Abstract
Title: Rural Infrastructure, Market Participation, and Welfare in Developing Regions
Author(s): Elaine FREY, Department of Economics, California State University, Long Beach, 1250 Bellflower Blvd, Long Beach, CA 90840-4607, USA, 562-985-5086, 562-985-5804, Elaine.Frey at csulb dot edu; Jill Caviglia-Harris, Salisbury University [Photo credit: Jill Caviglia-Harris]
Abstract:
The introduction and improvement of energy, transportation, and irrigation networks can provide positive community benefits and assist with other aspects of development. However, these benefits are likely to be unevenly distributed among the population. Poor, rural households are highly heterogeneous in their control over productive assets and are impacted by market changes and large scale shocks in different ways. Development policy should therefore be expected to not only focus on the provision infrastructure services, but also on reaching marginal populations. This paper seeks to determine the impact of two large scale infrastructure projects within a rural agricultural community in the Brazilian Amazon. We develop a theoretical household model that that explains participation in input markets and output markets, where decisions are dependent upon access to infrastructure (or exogenous asset levels). We then use multilevel latent variable models to estimate the effect of infrastructure access on household input mix and output mix over time. This approach provides an analytical tool for the microlevel analysis of policy reforms and can be used to analyze differential responses by various groups of households.
Our study site (Ouro Preto do Oeste, Rondonia, Brazil) lies within the arc of deforestation, is heavily deforested, and is representative of many settlements originating from the government's large scale initiative to populate the Amazon. There has been considerable change and growth since the region's original occupation in the late 1960s, as well as over the 13-year time frame that is the focus of this study (1996-2009). While primary roads, electricity grids, and schools have been available relatively early in city centers, feeder roads with access to rural lots were not available until many years later, with electricity and schools to these same areas first available only in 2000. Thus, the survey and GIS data available are ideal for studying the impacts of infrastructure change and the related implications.
To estimate the impact of infrastructure changes on market outcomes, we classify stages of development in terms of the types of goods households produce (output mix) and the type of laborers used by the household to produce (input mix). Using multilevel latent variable models, we show that access to infrastructure does have an impact on both input and output mix of households. More specifically, households with access to electricity tend to produce using hired laborers, rather than household members. However, electricity access does not impact product mix. Households with access to high quality roads tend to produce cattle, rather than annual crops. But, road quality does not impact household input mix. Our findings show that although infrastructure changes do have positive impacts on household welfare and economic development of the region, household's participation in labor and output markets vary depending on the type of infrastructure project implemented.