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By Kiprono Philemon 2014 GRIPS DISSERTATION ROADS AND RURAL DEVELOPMENT:EVIDENCE FROM A LONGITUDINAL HOUSEHOLD SURVEY IN KENYA by Kiprono Philemon 2014 GRIPS NATIONAL GRADUATE INSTITUTE FOR POLICY STUDIES GRIPS TOKYO, JAPAN ROADS AND RURAL DEVELOPMENT:EVIDENCE FROM A LONGITUDINAL HOUSEHOLD SURVEY IN KENYA A Dissertation Submitted to the Faculty of Economics at the National Graduate Institute for Policy Studies (GRIPS) in Partial Fulfillment of the Requirements for the Degree of DOCTOR OF PHILOSOPHY IN DEVELOPMENT ECONOMICS by Kiprono Philemon September, 2014 Abstract ROADS AND RURAL DEVELOPMENT:EVIDENCE FROM A LONGITUDINAL HOUSEHOLD SURVEY IN KENYA by: Kiprono Philemon Dissertation Director: Prof. Tomoya Matsumoto September, 2014 Agricultural productivity continues to dwindle in Sub-Saharan Africa (SSA) countries, and, coupled with the high rate of population growth and the ever changing climatic conditions, these nations are exposed to extreme poverty. Unless drastic measures are undertaken to reverse the trend, food production will continue to decrease eventually setting the countries into poverty traps. Hardest hit will be the rural areas, where the majority of the vulnerable poor live. To avert this looming crisis, researchers have proposed a number of measures, including improving road infrastructure to aid market accessibility and integration, which is thought to have a larger and sustainable impact. Market accessibility and integration as a result of road infrastructure improvement is pertinent to the process of economic development, especially in rural areas, as commodity prices is linked to transport cost. High transportation costs are always reflected in high input prices and low output prices, thus forbidding smallholder farmers to engage in profitable agricultural investment. Documented evidence of the benefits of road infrastructure improvement have remained scarce, concentrating in Asia with a few studies in Africa. In the recent past, there have been sizeable cash flows (in terms of concession loans ii iii and grants) to the African continent to support the improvement of road infrastructure, yet a few studies have been carried out to asses the impacts of such a massive investment. Using longitudinal data collected in Kenya between 2004 and 2012, and supplementary data for roads infrastructure, this study finds the positive impact of road improvement on a number of our outcome variables. Specifically, land allocated to hybrid maize, organic manure application, the yield of maize and market participation for milk increased in areas experiencing better road access. Although the use of inorganic fertilizer increased, it was not significantly associated with improved roads. Furthermore, this study finds that in areas experiencing road improvement, smallholder farmers’ income, in particular farm income, livestock income and non-farm income have increased. It also finds increased household expenditures in areas receiving road improvement, especially expenditures on food. Lastly, this study evaluates the determinants of the road improvement by combining longitudinal dataset collected in Kenya between 2004 and 2012 together with secondary election dataset and night-light dataset for the same period. The study finds that during the period between 2003 and 2012, there was no undue influence by politics on the allocation of Constituency Development Funds (CDF) as well as on road rehabilitation. We find that between 2004 and 2012, the areas represented by Members of Parliament (MPs) allied to the government did not receive more rural road improvement than areas represented by the opposition. In fact, there has been a significant reduction in the improvement of infrastructure in areas where cabinet members hail from. Similarly, the areas that voted for the winning presidential candidate did not receive more rural road improvement that other areas. For the road improvement to nearby big town, there is a positive association between road infrastructure improvement with our political variables, but may be a contemporaneous. iv Using these findings, a number of policies geared towards the improvement of agricultural productivity and development have been suggested. Dedication To my parents my wife Gladys and my daughters Ashley and Tamara. v Summary of the Dissertation The global community is concerned about the escalating levels of poverty in developing nations. Many of these developing countries are facing acute starvation as a result of inadequate food production, exacerbated by climate change and inappropriate farming technologies. There are a number of studies demonstrating that agricultural productivity in SSA is declining and that this trend can be reversed if proper and modern farm techniques are employed, especially the utilization of organic fertilizers and the adoption of high yielding varieties. However, due to poor market accessibility as a result of dilapidated road infrastructure, farmers are unable to access the much-needed farm inputs like fertilizer and hybrid seeds, hence holding them back from increasing their farm productivity. Good roads enable markets to integrate, enabling faster movement of commodities across markets. Besides physical movement of commodities, good roads reduces transportation costs both pecuniary and time cost, translating to reduced farm input prices and higher farm output prices making farming profitable. Furthermore, because of farmers’ networks, good roads enables information infiltration, thus reducing information asymmetry on prices therefore reducing price spread across markets. This will enable farmers to make firm decisions wether to sell their farm produce at the farm-gate or take them to the markets where they can exercise their power to dictate output prices. Therefore, there is a need to have reliable roads to deliver these commodities. Using new panel data from Kenya, this thesis evaluates the impact of road improvement on agricultural productivity and welfare improvement in addition to vi vii investigating the determinants of road improvement. First, in Chapter1, we give a brief introduction of the thesis and significance of issues to be addressed, while in Chapter2, we describe our data and procedure of some of the variable generation. Chapter3 gives extensive review of studies on the impacts of infrastructure improvement. In Chapter4, we investigate the impact of road improvement on farming, especially fertilizer usage, maize yield and market participation for both maize and milk by smallholder farmers. Kenya has recently embarked on an ambitious road infrastructure improvement scheme, and the fact that 40 million people rely on 3.5 million smallholder farmers for food production calls for the urgent need to increase agricultural productivity in order to avert food shortages. Thus, the objective of this chapter is to ascertain whether the recent road improvement in Kenya road can nudge farmers to increase the adoption of yield enhancing farm inputs such as inorganic fertilizers and hybrids seeds, as well as participate in the marketing of their farm produce. In Chapter5, we investigate whether road improvement contributes to better household income and increased expenditures. The underlying idea is that when roads are improved, markets are integrated, and farmers are subsequently exposed to a number of opportunities of which they can take advantage and diversify their income sources. Therefore, the objective of this chapter is to ascertain if indeed road improvement can translate to increased incomes and expenditures, and if so, what are the pathways under which these benefits are channeled. Having looked into whether road improvement leads to the adoption of farm technologies and increases market participation and whether road improvement leads viii to increased household income and expenditures, Chapter6 investigates the factors that might have influenced the rehabilitation of the road network in Kenya. Road rehabilitation in Kenya has always been marked by controversies, with politicians and government officials being accused of diverting resources meant for road rehabilitation. In this chapter, we seek to unearth the link between democracy, as measured by winninng presidential vote share, political party affilitaion, and as a cabinet member, and road construction. We control for the effects of other development activities as proxied by night-light data, and ethnic composition in the districst. The use of night-light data has gained importance of late in the field of econometric, especially in countries with little information on development records. Because it is difficult to document what the political leaders amass for their constituents, we believe by using night-light data, we can trace the progress of development in these constituencies. This dissertation offers three main findings. First, the results show that land for hybrid maize, fertilizer intensification, maize yield and milk market participation increase more in areas with better road improvement. This suggests that the recent road rehabilitation in Kenya has improve agricultural productivity. However, there was a negative impact on sale of maize, and although we were not able to verify this, is attributed to two factors, namely the subsistence nature of the smallholder farmers, and over supply of maize in the markets, hence lowering prices prices to unprofitable levels. Therefore improving roads infrastructure increases agricultural productivity, especially in the areas experiencing road improvement. Secondly, on whether there are benefits accruing from
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