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.