Seminar

Eliminating Uncertainty in Market Access: The Impact of New Bridges in Rural Nicaragua

Kevin Donovan (University of Notre Dame)

March 15, 2017, 09:45–11:00

Room MF 323

Macroeconomics Seminar

Abstract

We estimate the impact of new infrastructure in rural Nicaraguan villages facing seasonal floods that unpredictably eliminate access to outside markets. We build footbridges designed to eliminate this risk. Identification exploits small engineering requirements that preclude construction in some villages, despite their need for a bridge. We collect detailed annual household surveys over three years and weekly telephone followups with a subset of households for sixty-four weeks, both before and after construction. Bridges eliminate uncertainty in market access driven by floods: during flood episodes in con- trol villages labor market earnings decrease by 30 percent, while there is no change in treatment villages. This translates into substantial reallocation of activities between farming and wage work, increased fertilizer spending and yields on farms, and lower savings. In a model of occupational choice and risky farm investment, we show that these results are a rationalize response to lower income risk induced by the bridges. In particular, the bridge de- creases distortions in the agricultural sector through its change in access to labor markets.