and higher value of agricultural production. Table 2 also displays the estimates of road returns for input and output prices as well as agricultural productivity. Fertilizer prices are 5 percent lower in RDP and RRMIMP project villages, and real agricultural wages for men in RDP project villages are 27 percent higher than in control villages. The aggregate price index of crops is 5 percent higher and the aggregate crop output index is 39 percent higher in RDP project villages because of rural road development; similar returns accrue in RRMIMP project villages where the aggregate crop price and crop output indices are 4 and 30 percent higher, respectively, due to road investment.<sup>15</sup> Interestingly, when computing the elasticity of the agricultural output index with respect to the road project (Table 3), we find that the elasticity is 0.27 for RDP households and 0.23 for RRMIMP households.<sup>16</sup> These figures are very close to the road-aggregate output elasticity (0.21) obtained by Binswanger, Khandker and Rosenzweig (1993), where they use district-level data in India to examine the linkages between infrastructure, financial institutions, and aggregate output in India.<sup>17</sup> Road development thus not only helps farmers due to higher crop production and prices, and lower prices of inputs such as fertilizer, but also benefits households via higher demand for labor, thereby raising the real agricultural wage rate of male labor (at least in RDP villages) up to 27 percent.<sup>18</sup> Higher wages and higher demand for labor can raise family labor supply. However, the net demand for family labor also depends on the negative effect of higher income on labor supply (thus, causing higher demand for leisure), which may reduce family labor supply. Nevertheless, as Table 2 shows, male labor supply increases by 49 percent and female labor by 51 percent in RDP villages because of a road development project. There are no similar statistically significant gains in RRMIMP villages for family labor supply.<sup>19</sup> The results do suggest that gains from both input and output markets due to road investment are substantial for rural households.

The overall economic returns to road development can be measured by summing over the gains through transportation cost savings, higher output and lower input market prices, and higher productivity. While there is no an easy way we can summarize these benefits in one return estimate, such gains

> 15 Jacoby (2000) predicts that land prices can also rise from better transport, using household distance from the market center as an indicator of transport quality in a household survey from Nepal.  More specifically, he finds that land values rise by about 2% if household distance to the nearest market center falls by 10%.

> 16 In RDP, about 68% of the villages were project villages, and about 75% of villages in the RRMIMP sample were targeted by the project.

> 17 Normally, the effects are higher at the household level, and thus our findings are consistent with previous results for road development in comparable areas.

> 18 This is consistent with results from Jacoby (2000) as well, who finds that wages are also lower in remote rural areas of Nepal.  We also found rural electrification to have a significant negative impact on fertilizer price and increase agricultural real wage, aggregate crop price, and productivity.  Interestingly, the returns to rural electrification are higher than those of road investment for some of the outcomes considered.  The extended fixed effects results are available upon request.

> 19 Lokshin and Yemtsov (2005) also find in their study of Georgia that road projects do not seem to significantly impact overall male and female labor supply in treatment as compared to control areas.

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