Impact of infrastructure on rural household income and inequality in Nepal

Weak public infrastructure may contribute to poverty and inequality. Studies have found that roads are a key factor affecting rural incomes in developing countries. Yet, there is relatively scant evidence of the economic impacts of rural roads at the individual household level. This study contributes to the literature by empirically analysing the effects of rural road construction on household income and income inequality in Nepal. Using a quasi-experimental design, a difference-in-difference approach is developed and employed to analyse household (n = 177) data before and after road construction. We find that the new road had a significantly positive impact on mean household income of USD 235 (28%). Contrary to expectations, we do not find an increase in income inequality. Compared to the counterfactual site, it appears that the road has rather contributed to decreasing income inequality. The poorest households gained most from the road construction, making it a pro-poor development intervention.