Financing road projects and its impact on off-farm work in rural China

Abstract

Effective public sector decision-making in infrastructure financing is crucial for socio-economic development, especially in emerging economies. Since 2003, China has revamped its rural road construction policy, transitioning from “workers self-organised construction (Min Gong Jian Qin)" to a “one project, one discussion (Yi Shi Yi Yi)" approach and significantly increasing government investment. This study evaluates the impact of various financing sources—externally funded, self-financed, and mix financed—on rural off-farm income and migration intentions using the Chinese Household Income Project survey data, employing difference-in-differences and propensity score matching methodologies to analyze the socio-economic impacts of rural road projects financed through different sources on off-farm work income and migration intentions of the rural Chinese population. Findings reveal that externally funded road projects significantly enhance off-farm income and encourage migration intentions for work. Conversely, self-financed projects that rely on local villagers' contributions and voluntary labor, show no positive impact on off-farm income and unexpectedly reduce migration intentions. Importantly, projects with mixed financing models were found to have no significant impact on either off-farm income or migration patterns, highlighting challenges in the coordination and efficacy of these hybrid financing strategies. These results contribute to the discourse on public sector decision-making by demonstrating the critical role of government-funded infrastructure in facilitating socio-economic development in rural areas. The study underscores the importance of strategic resource allocation and effective financing models in enhancing rural infrastructure, increasing income, and enabling rural out-migration for improved livelihoods.