Introduction

Most poor people of the world reside in rural areas, which are frequently characterized by low levels of public infrastructure, especially roads. Inadequate roads raise transport costs, limiting the use poor people can make of local markets for the sale of their produce, the purchase of consumer goods and opportunities for off-farm employment. Access to educational and health facilities, where they exist, is also constrained when it is difficult to reach them. In tropical areas, unsealed roads may actually be impassable during the extended rainy periods of the year. These problems are particularly acute in Lao PDR, where inadequate roads are a severe problem for rural people. But significant road improvement is generally not a form of investment that rural people can make by themselves. Public sector involvement is required. Action to improve rural roads therefore seems a clear means by which large numbers of people might acquire the opportunity to participate in the market economy and thereby raise themselves out of poverty. But does it actually work?

At an aggregate level, the Lao economy is performing moderately well, with growth of real GDP consistently lying between 5 and 6 per cent since 2000, slightly above the average rate over the preceding decade. Measured poverty incidence has declined over this period. The official measure of national poverty incidence has declined from 46 per cent of the population at a national level in 1992-93 to 39 per cent in 1997-98. Preliminary estimates of the level in 2002-03 place it at 31 per cent. As in most developing countries, poverty in Lao PDR is concentrated in rural areas. The percentage of the rural population with consumption expenditures below the official poverty line has been estimated at 52, 43 and 33 per cent, respectively, over the same years. The corresponding estimates for poverty incidence in urban areas were 27, 22 and 23 per cent, respectively.

Economic reforms, beginning around 1987, have seemingly contributed to these favorable outcomes by permitting greater participation in both local markets and markets in neighboring countries. However, it is recognized that removal of obstacles to the functioning of markets may be of little or no assistance to rural people if very poor roads prevent them from participating in these markets. Over the past decade, efforts by the Lao PDR government with assistance from international institutions have resulted in significant improvements in the state of Lao rural roads. But there is still much progress to be made. This paper is an attempt to study the contribution that improved rural roads have made to poverty reduction in Lao PDR in the recent past, and - by extension - the scope for continued poverty reduction through this means.

A number of studies have suggested that improvement of infrastructure in rural areas can contribute to agricultural productivity and economic welfare in those areas. Examples include Binswanger et al. (1993), van de Walle and Nead (1995), van de Walle (1996 and 2002), Jacoby (2000) and Gibson and Rozelle (2003). Lanjouw (1999) demonstrates, for the case of Ecuador, the importance of access to off-farm employment in these outcomes. A study of rural Peple’s Republic of China (PRC) (Jalan and Ravallion 1998) suggested that higher density of roads in a particular area lowered the probability that households in that area would be poor. Srinivasan (1986) points to the special importance of these issues in landlocked countries such as Lao PDR.

Suppose it is found that areas with better access to main roads had higher levels of consumption expenditures per person and lower levels of poverty incidence. This does not in itself prove that improved roads cause lower levels of poverty, for two kinds of reasons. First, because the regions with better roads (and lower poverty incidence) differ from those with inferior roads (and higher poverty incidence) in many respects, not just the quality of roads.

Multivariate regression is a statistical device for dealing with this problem, by allowing for the levels of other variables such as education, health facilities and regional effects. If an association is still found between better access to roads and higher per capita consumption, then this point has been allowed for.

A second problem with a simple cross-sectional comparison of road (or other infrastructure) availability with economic indicators at a particular time is more problematic. If better-off areas are favored by the government for the construction of these infrastructure facilities, then the existence of a correlation between their provision and the economic indicator concerned may not indicate that the provision of the infrastructure causes better economic performance, but rather the reverse. Studies noting this potential problem, now known as the ‘endogenous placement’ problem include Binswanger et al. (1993), and van der Walle and Nead (1995). For this reason, wherever possible it is desirable to supplement such cross-sectional analyses with studies over time which focus on the effect that changes in road provision over time have on changes in economic indicators, like poverty incidence, income, expenditure and so forth.

Studies of poverty incidence in Lao PDR are constrained by the availability of household survey data sets which can support this form of analysis. The only such data sets available are assembled by the government's National Statistical Center and are known as the Lao Expenditure and Consumption Survey (LECS). Three such surveys have been conducted to date:

LECS 1, covering 1992-93;
LECS 2 covering 1997-98; and
LECS 3, covering 2002-03.

Statistical changes in LECS 2 limited the scope for comparison with LECS 1, but LECS 2 and 3 are closely comparable. The data from LECS 3 were released in late 2004 and can now be analyzed. This paper makes extensive use of the data now available in LECS 2 and LECS 3.

Earlier poverty assessment studies for Lao PDR, using the LECS 2 data set, confirm that in 1997-98 areas with better access to main roads had higher levels of consumption expenditures per person, allowing for the levels of other variables such as education, health facilities and regional effects. Two important examples are Datt and Wang (2001) and Kakwani, Datt, Sisouphanthong, Souksavath and Wang (2002). For the purposes of the present discussion, the two use similar statistical methods and reach similar conclusions. In each of these studies, the relationship between infrastructure and real expenditures is only one of many issues which are examined and this effect of road infrastructure occupies a minor part in the analysis and discussion. Neither of these studies estimates the implications of the results for poverty incidence and neither recognizes the possible relevance of the 'endogenous placement' effect. Consequently, it is not clear from the results presented whether the correlation between good roads and economic welfare means that better roads reduce poverty or merely that richer areas receive improved roads ahead of poorer areas.

However, the release of LECS 3 data means that a richer analysis of the relationship between infrastructure provision and poverty incidence is now possible, by comparing LECS 2 and LECS 3, which span an interval (1997-98 to 2002-03) during which there was significant progress in infrastructure provision, including roads. That is, the LECS 3 data make it possible to focus to focus on the determinants of changes in poverty incidence over time, rather than simply the level of poverty incidence at a particular time.

The structure of the paper is as follows. Section 2 reviews economic change in Lao PDR since the late 1980s. This is important because this paper is concerned with analyzing changes in rural poverty incidence between 1997-98 (the date of the LECS 2 survey) and 2002-03 (the date of LECS 3). This requires an understanding of the economic background within which these changes occurred. Due to structural changes within the Lao economy, rural areas have been subjected to considerable economic pressure, which is relevant for an understanding of the changes in poverty incidence that have occurred. Section 3 reviews the conceptual background and meaning of poverty measurement and then summarizes data on poverty incidence and inequality within Lao PDR and places these data within the context of other Southeast Asian countries. Section 4 then presents the results of the empirical analysis of the relationship between road development and poverty incidence in rural areas of Laos. Section 5 concludes.

Download this Discussion Paper [ PDF 314.5KB| 42 pages ].

Post a Comment

We welcome your feedback on this publication. Post a comment. ADBI is not obliged to acknowledge or publish comments and may abridge or edit them before web posting.

Comment(s)

There are [3] comment(s) for this entry. Post a comment.

1. Ahmad Raza Khan
   (posted 28 November 2008 / 02:15:56 PM)
   
   It is very impressive and one can learn from the report and implement these findings in our own country. I am from Pakistan where the major portion of population lives in rural areas. The road network in Pakistan is not impressive especially in rural areas the situation is even more worse.
   by building road infrastructure and improving the alread existing , we can change the lives of people.
   
2. Arounyadeth
   (posted 22 October 2008 / 08:38:37 PM)
   
   Road is very important for development in Laos as many studies suggested. However, the project from ADB or other donors mostly concentrate on East-West road network. So far, North-South road network has been mostly untapped, except some maintenance project for route 13. However, the study on direct link road from North-South should be studied, because North-South regions hold comparative advantages, which they could trade to each other, e.g. livestock and paddy. I really hope that there will be more studying on this matter.
3. Karel Martens
   (posted 29 June 2007 / 05:44:52 PM)
   
   It is important to note that roads will only alleviate poverty if it goes together with a transport service that is accessible for the poor. The expectation that roads alleviate poverty is based on the assumption that some form of para-transit will be available to travel with or without goods.
   In current circumstances, such services will most likely be provided by the market. However, as affluence increases, so will car ownership, and the same roads build to alleviate poverty, may become instruments to increase the gaps between those with and those without cars.
   it is therefore important to stress what is alleviating poverty: not the roads as such but the transport service it provides to the poor. By focusing on the transport service rather than roads the proper link between poverty alleviation and accessibility is made.