# **1. Introduction**

Transport development is widely considered as a key to economic growth and poverty reduction in the developing world (Berge et al. 2017). As global poverty is increasingly concentrated in SubSaharan Africa (World Bank 2018a) and the majority of the extreme poor live in rural Africa, it is imperative to ensure their access to markets. The provision of access to all-weather feeder roads, or rural roads, is expected to raise living standards in poor rural areas by reducing transport costs between villages and markets and thereby generating market activity, affecting input and output prices, and enhancing agricultural production through the increased use of modern technologies and the changes in crop choice (Hine et al. 2016). Moreover, rural roads potentially promote structural transformation by facilitating non-farm employment.

With such expectations of its fundamental role in economic growth and poverty reduction, a large amount of money has been invested in the development of rural roads in developing countries. Ethiopia is not an exception; the government has put considerable efforts into rural road development. In particular, under the umbrella of the Growth and Transformation Program, the government launched an ambitious program, the Universal Rural Road Access Program (URRAP), in 2010 to promote construction and upgrading of more than 70,000km of rural roads in the country (World Bank 2018b). The program aims to ensure all rural communities of the country have allweather connections. The program implementation for the first five years cost 28 billion Ethiopian birr, or US$1.4 billion.

Despite the scale of the investment in developing countries and general consensus on the importance of rural roads, empirical evidence on the impacts of rural road development has been scarce. Among various methodological challenges in the impact evaluation of rural road programs, endogeneity problems stemming from the non-random placement of rural roads are particularly difficult to deal with (van de Walle 2009; Blimpo, Harding, and Wantchekon 2013; Burgess et al. 2015; Lehne, Shapiro, and Eynde 2018).<sup>3</sup> Some recent studies focus on India’s nationwide rural road program (Pradhan Mantri Gram Sadak Yojana, or PMGSY) (Asher and Novosad 2018; Shamdasani 2016; Aggarwal 2018). They exploit the program’s clear criteria for selecting villages, such as population thresholds, in identifying the impacts on agriculture and other outcomes. Unfortunately, such identification strategy cannot be applied to other rural road developments that are not strictly enforced based on objective criteria as in Ethiopia’s URRAP.

This study attempts to assess welfare and economic impacts of recent rural road development in Ethiopia by addressing the aforementioned challenges with rich data sets. The analysis focuses on the short-term impacts, within six years from the road development at the longest, yet its study period from 2010 to 2016 covers recent severe droughts, which helps to examine the role of rural roads amid such weather shocks. This study examines the following key questions. First, to what extent has the development of rural roads contributed to the improvements in household welfare and economic activities in rural Ethiopia? Second, who (and which areas) have better/less benefited from the rural road developments? Of particular interest is whether those who are the least connected with markets have gained from the rural road investments. Finally, this study also 3 Moreover, it is often hard to keep track of the rural road development across time and space if the program covers the entire area of a country. It is becoming common to rely on satellite imageries in economic studies (Donaldson and Storeygard 2017), though rural roads—which are community roads—and their changes in quality are hard to identify with such an approach because of their narrow and short paths.

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