The Impact of Ethiopia's Road Investment Program on Economic Development and Land Use : Evidence from Satellite Data

This paper studies the impacts of the large-scale Road Sector Development Program in Ethiopia between 1997 and 2016 on local economic activity and land cover (urbanization and cropland). It exploits spatial and temporal variation in road upgrades across Ethiopia, together with high-resolution panel data derived from satellite imagery. The findings show that road upgrades contributed to increases in local economic activity, as proxied by nighttime lights and urban land area. However, there is significant heterogeneity in the results across baseline levels of economic activity. Specifically, gains from road upgrades are concentrated in areas with moderate-to-high initial levels of economic activity. By contrast, there was little, or even negative, growth in areas with low levels of initial economic activity. Finally, the findings show that road upgrades contributed to a reduction in cropland in areas with medium-to-high baseline nighttime lights. The results suggest that Ethiopia's ambitious road infrastructure development program overall increased local economic activity and urbanization, but that it also had important distributional implications that need to be taken into account when planning such infrastructure programs