The unintended harms of infrastructure: Opium and road construction in Afghanistan

Abstract

This study provides evidence that infrastructure investment can encourage economic activity through illicit pathways. I examine this relationship in the context of Afghanistan, where I show that the construction of the country's largest modern infrastructure project, a 2,200 kilometer highway known as the A1 or Ring Road, led to significant increases in local opium cultivation over the past decade. Estimates from a two-way fixed effects model that exploits spatial and temporal variation in district-level poppy cultivation and proximity to the road suggest that the introduction of a highway to a district is associated with a 650 hectare increase in poppy cultivation in the subsequent year. This cultivation increases the longer a district has access to the road: Production in the second and third years rises by 750 and 900 hectares over pre-highway levels, respectively. Estimates also suggest that improved highway access leads Afghan farmers to substitute away from the production of legal crops towards opium, and that more farmers grow opium as their primary income-generating crop. These findings suggest that in nations where the rule of law is limited and opportunities for legal livelihoods remain scarce, investments in physical infrastructure can inadvertently incentivize illegal economic activity.