Economy-wide Impact of Investment in Road Infrastructure in Ethiopia: A Recursive Dynamic CGE Approach

Abstract

In this study an attempt has been made to examine economy wide impact of investment in road infrastructure using a recursive dynamic CGE model. The study used an updated version of the 2005/06 EDRI Social Accounting Matrix. Simulations with the CGE model confirm that with the increasing availability of road infrastructure, there is a positive growth on the macroeconomic and sectorial indicators (Real GDP, absorption, investment, private consumption, real export, and real import) though the magnitude of the effects is relatively small compared with the high investment costs and the changes vary among the different indicators. Similarly, the demand for labor, capital, land and livestock increases with increasing availability of road infrastructure. Income from livestock and land responds better compared to labor and capital as road investment increases. Welfare, measured as equivalent variation, increases on average and at the disaggregate level for all households. The rural poor benefited more from road investment in terms of earning better income and consumption. Road infrastructure affects the production sectors differently. Industrial sectors benefit, while agricultural sectors are relatively less favored.

Keywords: Road, infrastructure, CGE, Ethiopia