Roads to Development: Experimental Evidence from Urban Road Pavement

Abstract

Urban peripheries in many developing country cities lack basic local public goods like pavement, water, sewerage and electricity. We estimate the impacts of slum infrastructure upgrading using an experiment in urban road pavement provision in Mexico. Our findings show that homes in streets that were paved increased their value between 15 and 17%. Households living in streets that were paved obtained more credit, had higher per capita expenditures, increased motor vehicle ownership and were more likely to have made home improvements. The rate of return to road pavement is estimated to be 2% without considering externalities, but raises to 55% once externalities are accounted for. We also present a model to understand the experimental estimates. Increases in consumption are more strongly correlated with increases in housing value than reductions in transport costs, suggesting that the wealth effect generated by the road pavement was a stronger driver of consumption than the reduction in transport costs.