Rural roads and economic development: Insights from India

Abstract

Road connectivity is critical for socioeconomic development in rural areas. Unfortunately, significantly large proportions of rural populations worldwide, particularly in relatively lower-income countries, still lack access to all-weather roads. I leverage data from the first phase of India's Pradhan Mantri Gram Sadak Yojana (PMGSY) – the Prime Minister's Village Road Scheme – to analyze whether the provision of basic single-lane all-weather road links to previously unconnected rural habitations has led to growth in economic performance, specifically in the agriculture sector. I empirically investigate whether, all else equal, districts that made greater progress in rural road connectivity – in terms of km of new road constructed and the number of new habitations connected, relative to targets – over the first decade of the PMGSY experienced greater levels of growth in per capita GDP, overall and in the agriculture sector. Results show that new rural road development can indeed have a significant positive impact on per capita agriculture GDP growth; places with relatively lower baseline agricultural performance can benefit more. A series of OLS, Spatial Error, and 3SLS models confirm the reliability of estimated effects. In addition to demonstrating the positive economic impact of the PMGSY in India, specifically its contribution to growth in economic performance and productivity in the agriculture sector, this study underscores the economic rationale of rural road connectivity investments across the developing world.