Road maintenance and local economic development: Evidence from Indonesia’s highways

Study Overview

This paper estimates the local welfare impacts of highway maintenance investments. We instrument road quality exploiting Indonesia’s two-step budgeting process for allocating funding to local road authorities.

Study Results

Using comprehensive data on road quality from 1990–2007, we find evidence that better roads help manufacturers create new jobs, enabling worker transitions out of informal employment, and increasing labor income. Road quality also changes the cost of living, reducing perishable food prices but also raising housing prices. We estimate the elasticity of household welfare with respect to road quality to be 0.1 and the benefit/cost ratio for road maintenance investments to be 2.3.

Intervention: Road upgrades

Journal Publication: Gertler, Paul J., Marco Gonzalez-Navarro, Tadeja Gračner, Alexander D. Rothenberg, 2024. "Road maintenance and local economic development: Evidence from Indonesia’s highways," Journal of Urban Economics, vol 143. https://doi.org/10.1016/j.jue.2024.103687