The main objectives of the present paper are twofold: (i) to describe the methodological challenges related to road-sector impact evaluation activities and lessons learned from the Tocantins experience; and (ii) to document the evidence that emerged in order to demonstrate the impacts of rural road improvements in the state, given the available survey data. The evaluation first focuses on direct outcomes to determine the existence of relatively short-term impacts resulting from the project. Thereafter, traditional social and economic impacts are measured. Two different methods are used—difference-in-differences (DID) matching and DID regression—to minimize issues observed in the control group through the execution of the surveys. In addition, instrumental variable (IV) estimators are also used to verify the robustness of the results.

The paper is organized as follows: Section II provides a context for the study. Section III discusses methodological challenges and lessons learned from the experience. Sections IV and V, respectively, present available data and describe the methodology used. Section VI summarizes the main findings. Section VII discusses various empirical issues and policy implications. Section VIII presents the study’s main conclusions.

# 2 Context of the study

Brazil has made impressive gains in terms of socioeconomic development in recent years. A steady gross domestic product (GDP) growth of one to six percent over the last decade, combined with sustained social policies, contributed to increasing the GDP per capita (constant 2005 US$) from US$4,400 in 2000 to US$5,700 in 2012.<sup>5</sup> This allowed more than 20 million people to rise above the poverty line in the past decade. However, these overall positive figures mask a wide range of realities on the ground. For instance, depending on the region, inequality remains persistently high in Brazil, with a Gini index of about 0.55 in 2009, even though it decreased from 0.66 in 2001. Many poor live in rural areas (rural dwellers total 27 million in Brazil) and lack access to services, markets and jobs, due to the lack of appropriate transport infrastructure and services.

The State of Tocantins is among the least-developed but fastest-growing regions in Brazil. Created under the 1988 Constitution, it is the country’s newest state. With a population of 1.38 million on 277,000 square kilometers (km2) of land, the population density is low at five persons per km2. Urbanization has accelerated at a fast pace since the state’s creation and is now aligned with the national trend in Brazil, where 79 percent of the population lives in urban areas. Tocantins’ urban population is concentrated in 10 major cities. Most of its other cities are small: over half of the state’s 139 municipalities contain fewer than 5,000 inhabitants, often scattered throughout the municipal jurisdiction’s territory.

Although the state’s GDP per capita has nearly doubled in the past six years, (a) it currently stands at a relatively low R$12,891 (2011)<sup>6</sup> (equivalent to US$7,400,<sup>7</sup> using the 2011 average exchange rate), placing Tocantins 16<sup>th</sup> among Brazil’s 27 states; (b) the Human Development Index (HDI) was 0.756 in 2005 (vs. 0.61 in 1991),<sup>8</sup> but about 11 percent (2008) of the population remains below the poverty line; (c) the infant mortality rate (2010) is 20.5 deaths per 1,000 children under the age of one (14.5 on average in Brazil); and (d) the literacy rate has improved significantly, from 62 percent in 1991 to 85 percent in 2007, but test scores remain well below Brazil’s average at both the primary and secondary levels, as does access to early childhood education. Finally, two vulnerable groups live in Tocantins, including (a) 13,100 indigenous peoples who reside mostly in six main indigenous

> 5 World Development Indicators.

> 6 IBGE: Brazilian Institute of Geography and Statistics ( _Instituto Brasileiro de Geografia e Estadística_ ).

> 7 Brazil’s GDP per capita in 2011 (current) was US$12,567 (World Development Indicators).

> 8 Defined by the Brazilian Federal Government as families with per capita income up to R$70 monthly.

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