Working Paper: NBER ID: w30454
Authors: Paul Gertler; Marco Gonzalez-Navarro; Tadeja Gracner; Alexander D. Rothenberg
Abstract: This paper estimates the local welfare impacts of highway maintenance investments. We instrument road quality exploiting Indonesia’s two-step budgeting process for allocating funding to local road authorities. Using comprehensive data on road quality from 1990-2007, we find evidence that better roads help manufacturers create new jobs, enabling worker transitions out of informal employment, and increasing labor income. Road quality also changes the cost of living, reducing perishable food prices but also raising housing prices. We estimate the elasticity of household welfare with respect to road quality to be 0.09 and the benefit/cost ratio for road maintenance investments to be 1.8.
Keywords: road maintenance; local economic development; Indonesia; highway quality; welfare impacts
JEL Codes: J43; O18; R23; R42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Road quality (R42) | Local economic development (O29) |
| Road quality (R42) | Nominal income (E25) |
| Road quality (R42) | Consumption expenditures (E20) |
| Road quality (R42) | Job creation in manufacturing (L60) |
| Road quality (R42) | Transition from informal to higher-wage jobs (J62) |
| Road quality (R42) | Prices of perishable food products (Q11) |
| Road quality (R42) | Housing prices (R31) |
| Road quality (R42) | Household welfare (I38) |
| Median upgrade in road quality (R42) | Total welfare (D69) |
| Road maintenance investments (R42) | Cost-benefit ratio (H43) |