Impact of rural roads on agricultural exports in India: An instrumental variable approach

Abstract

In this study, we estimate the effect of rural roads on agricultural exports in India. We use a novel data set of state-level agricultural exports at a highly disaggregated product level (HS6). We combine it with publicly available data on road construction under Pradhan Mantri Gram Sadak Yojana (PMGSY) from 2004 to 2016 to estimate the effect of rural road access on agricultural exports. We use the instrumental variable (IV) approach, whereby we use discontinuity in treatment under the program at the population-based eligibility cut-offs for road construction as a plausible exogenous variation in road placement. This rectifies the endogeneity bias due to the placement of road construction. We find strong evidence of the positive effect of increased access to rural roads on agricultural exports. In search of mechanisms, we also find evidence of an increase in the mechanization of farms due to the construction of rural roads. We also find that the results were primarily driven by states having more initial agricultural productivity.