Road Infrastructure and Rural Income in Ethiopia: Transmission Mechanisms

Improvement in rural road access enhances rural income through reducing transaction and transport cost, enhancing competition, expanding market opportunities and improving spatial prices for goods and factors. Through the price mechanisms, it subsequently influences various micro level decisions, namely what to produce (the choice of the cropping pattern), how to produce (input use pattern in general and adoption of new techniques in particular), how much to produce, how much to sell and where to sell. These decisions in turn, through their effect on static and dynamic efficiency, ultimately influence the level of income farm households can generate from their fixed resources.