How road quality investments boost economic activity and welfare: Evidence from Indonesia s Highways

Transcription

1 How road quality investments boost economic activity and welfare: Evidence from Indonesia s Highways Paul J. Gertler (UC Berkeley) Marco Gonzalez-Navarro (U of Toronto) Tadeja Gracner (UC Berkeley) Alexander D. Rothenberg (RAND) today

2 Research Question How does road quality affect economic activity and household s welfare in developing countries? 1 Firms 2 Households 3 Welfare

3 Preview of Results 1 Profits Total factor productivity Value added 2 Agricultural profits No change in manufacturing wages Dual labor markets? Switching from agriculture to manufacturing Switching from informal to formal sector In-migration of workers 3 Total earnings Consumption Land values

4 Indonesia Context Population: 250 million GDP PC PPP (2010): $4,600 51% urban Agriculture: 14% of GDP, 39% of labor force Industry: 47% of GDP, 22% of labor force Services: 38% of GDP, 47% of labor force

5 Background Most Indonesian roads built in colonial times: variation in road quality only. Transportation a development priority in the 1990s: Repelitas: five-year development plans Revised infrequently Funds towards road improvements instead of building new road networks Two Step Budgeting We study the effects on household s welfare due to these large changes in road quality (deterioration and upgrades) in Indonesia between 1993 and 2007.

6 Data: Panel of Road Quality at the Road Segment Level Road quality panel data of International Roughness Index (IRI) ( ) on 10 km sections of all major inter-urban roads. Transform IRI to roughness-induced travel time: IRI rdt = R r=1 d r IRI rdt R r=1 d r d r = length of the road segment r in district d t = time

7 Road System: Sumatra: 1990

8 Road System: Sumatra 2000

9 International Roughness Index (IRI), 1990 and 2000 Kernel density estimates of average IRI across kabupatens.

10 Time variation in roughness index Substantial variation in the timing and extent of road improvements.

11 Data: Indonesian Family Life Survey IFLS: Panel data on individuals and households 4 waves: 1993, 1997, 2000, Follows over 30,000 individuals, living in 13 of the 27 provinces in the country

12 Locations of IFLS Villages

13 Other Datasets Industrial Survey (Survei Industri) Census of all manufacturing establishments with more than 20 employees

14 Identification We don t have an experiment. But we have very detailed data with repeated observations of the same individual over a long time span We use person fixed effects estimation (How do changes in family outcomes correlate to changes in road quality?) Our preferred estimates use Instrumental Variables estimation where the instrument for road quality is road budgets for each road maintenance authority

15 Two-step budgeting: Institutional Road Sector Arrangement Source: World Bank (2012).

16 Results: Exclusion Restriction DV: log Budget t Province Panel District Panel Nat. roads Nat. roads Prov. roads Prov. roads District roads District roads (1) (2) (3) (4) (5) (6) log GDP t (0.185) (0.506) (0.118) log #Firms t (0.124) (0.284) (0.065) N Adjusted R Road FE No No No No No No Year FE Yes Yes Yes Yes Yes Yes Robust standard errors in parentheses, clustered at the road segment level. */**/*** denotes significant at the 10% / 5% / 1% levels.

17 Results: Firms and Value Added DV: Log Value Added (1) (2) Log Avg IRI (0.036)*** (0.031)** N N Firms Adjusted R Regression F Statistic Kleibergen-Paap F -Stat Year FE Yes Yes Industry FE Yes Yes Kabupaten / Kota FE Yes Yes Firm FE. Yes All regressions include a constant. Robust standard errors in parentheses, clustered at the firm level. */**/*** denotes significant at the 10% / 5% / 1% levels.

18 Results: Firms and TFP DV: Log TFP (1) (2) Log Avg IRI (0.040)** (0.037)*** N N Firms Adjusted R Regression F Statistic Kleibergen-Paap F -Stat Year FE Yes Yes Industry FE Yes Yes Kabupaten / Kota FE Yes Yes Firm FE. Yes All regressions include a constant. Robust standard errors in parentheses, clustered at the firm level. */**/*** denotes significant at the 10% / 5% / 1% levels.

19 Results: Firms and Hiring (1) Firm Outcomes DV: Log # DV: Log # of Firms of Workers (1) (2) Log Avg IRI (0.182)*** (0.286)*** N N Kabupaten / Kota Adj. R Regression F -Stat Kleibergen-Paap F -Stat DV Mean Kabupaten / Kota FE Yes Yes Year FE Yes Yes All regressions include a constant. Robust standard errors are reported in parentheses. */**/*** denotes significant at the 10% / 5% / 1% levels.

20 Results: Firms and Hiring (2) DV: Log Number of Workers (1) (2) Log Avg IRI (0.017)*** (0.012) N N Firms Adjusted R Regression F Statistic Kleibergen-Paap F -Stat Year FE Yes Yes Industry FE Yes Yes Kabupaten / Kota FE Yes Yes Firm FE. Yes All regressions include a constant. Robust standard errors in parentheses, clustered at the firm level. */**/*** denotes significant at the 10% / 5% / 1% levels.

21 Results: Total Earnings by Sector DV: Earnings by Sector Manu- Agri- Sales and facturing culture Services Other (1) (2) (3) (4) Log Avg IRI (0.363) (1.224)*** (0.404) (0.201) Adj. R Regression F -Stat Kleibergen-Paap F -Stat DV Mean N N Individuals N Desa / Kelurahan Individual FE Yes Yes Yes Yes Year FE Yes Yes Yes Yes Controls Yes Yes Yes Yes All regressions include a constant. Robust standard errors in parentheses, clustered at the (initial) village level. */**/*** denotes significant at the 10% / 5% / 1% levels.

22 Results: Labor Supply (1) DV: Working? (0 1) (1) Log Avg IRI (0.034) Adj. R Regression F -Stat Kleibergen-Paap Wald rk F -Stat DV Mean N N Individuals N Desa / Kelurahan 377 Individual FE Year FE Controls Yes Yes Yes All regressions include a constant. Robust standard errors in parentheses, clustered at the (initial) village level. */**/*** denotes significant at the 10% / 5% / 1% levels.

23 Results: Labor Supply (2) DV: Log Hours Worked (Cond. on working) (1) Log Avg IRI (0.060) Adj. R Regression F -Stat Kleibergen-Paap Wald rk F -Stat DV Mean N N Individuals 8168 N Desa / Kelurahan 321 Individual FE Year FE Controls Yes Yes Yes All regressions include a constant. Robust standard errors in parentheses, clustered at the (initial) village level. */**/*** denotes significant at the 10% / 5% / 1% levels.

24 Results: Sector Swtiching (1) DV: Any Primary Sector Log Hours Employment? Employment? Worked By Industry (1) (2) (3) Manufacturing (0.036)*** (0.033)*** (1.802)*** Adj. R Regression F -Stat Kleibergen-Paap F -Stat DV Mean Agriculture (0.033)* (0.034) (2.494) Adj. R Regression F -Stat Kleibergen-Paap F -Stat DV Mean Individual FE Yes Yes Yes Year FE Yes Yes Yes Controls Yes Yes Yes All regressions include a constant. Robust standard errors in parentheses, clustered at the (initial) village level. */**/*** denotes significant at the 10% / 5% / 1% levels.

25 Results: Sector Swtiching (2) DV: Any Primary Sector Log Hours Employment? Employment? Worked Formal vs. Informal (1) (2) (3) Informal (0.033)** (0.032)*** (2.592)** Adj. R Regression F -Stat Kleibergen-Paap F -Stat DV Mean Individual FE Yes Yes Yes Year FE Yes Yes Yes Controls Yes Yes Yes All regressions include a constant. Robust standard errors in parentheses, clustered at the (initial) village level. */**/*** denotes significant at the 10% / 5% / 1% levels.

26 Results: In-migration of workers DV: Log Share of Recent Migrants (2000 Census) (1) (2) Log IRI ( ) (0.153)*** (0.225)*** N Adjusted R F Statistic Kleibergen-Paap F -Stat DV Mean Province FE. Yes Kabupaten / Kota FE Yes Yes Year FE Yes Yes All regressions include a constant. Robust standard errors are reported in parentheses. */**/*** denotes significant at the 10% / 5% / 1% levels.

27 Results: HH Consumption DV: Log Consumption (Per Capita) (1) Log Avg IRI (0.061)*** Adj. R Regression F -Stat Kleibergen-Paap F -Stat DV Mean N N Households 6928 N Desa / Kelurahan 852 Household FE Year FE Controls Yes Yes Yes All regressions include a constant. Robust standard errors in parentheses, clustered at the (initial) village level. */**/*** denotes significant at the 10% / 5% / 1% levels.

28 Results: HH Total Earnings DV: Log Total Earnings (1) Log Avg IRI (0.328)*** Adj. R Regression F -Stat Kleibergen-Paap F -Stat DV Mean N N Individuals 6460 N Desa / Kelurahan 298 Household FE Year FE Controls Yes Yes Yes All regressions include a constant. Robust standard errors in parentheses, clustered at the (initial) village level. */**/*** denotes significant at the 10% / 5% / 1% levels.

29 Results: Land Prices DV: Log Rent DV: Log Land per Room Value (1) (2) Log Avg IRI (0.116)** (0.217)*** Adj. R Regression F -Stat Kleibergen-Paap F -Stat DV Mean N N Households N Desa / Kelurahan Household FE Yes Yes Year FE Yes Yes Controls Yes Yes All regressions include a constant. Robust standard errors in parentheses, clustered at the (initial) village level. */**/*** denotes significant at the 10% / 5% / 1% levels.

30 Decomposition - preliminary Amenity = A Total Hours Worked = H Wage = w Sector = s Total earnings = Y = S Y A = S s=1 w s ( Hs A E Y,A = S s=1 s=1 w sh s ) ( + ws ) Hs A ( ws H s Y ) EHs,A + ( w s H s Y ) Ews,A

31 Conclusions Improved road quality increases firm s value added, total factor productivity and labor demand through firms entry. Agricultural profits are very sensitive to road quality; manufacturing wages are not Earning gap persists: dual labor markets In-migration of workes to where road quality improves Switching from agriculture/informal to manufacturing/formal sector where road quality improves Improved road quality increases households welfare (consumption, income, land value ) Next: decomposition

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