Roads, Participation in Markets, and Benefits to Agricultural Households: Evidence from the Topography-Based Highway Network in Nepal

Abstract

This paper identifies the role of roads in improving agricultural livelihoods and examines the key market mechanisms through which improved connectivity translates into economic gains for agricultural households. I use a rigorous identification strategy based on the rugged terrain that significantly influences the design and costs of constructing roads in Nepal, along with new geospatial data to find a positive impact of roads on farmland values. A 1% decrease in distance to a road raises the market price of an agricultural plot from 0.1% to 0.25%. This increase in land value is underpinned by increased participation by households in agricultural markets and improved farm production and incomes. The results also suggest that a decrease in the distance to a road contributes to the commercialization of agriculture and increases the use of fertilizer in agricultural production, thus reducing the unit cost of fertilizers.