The Role of Public Infrastructure in Market Development in Rural Peru

Keywords:</span><st1:country-region><st1:place><span lang=EN-US>Peru</span></st1:place></st1:country-region><span lang=EN-US>, rural infrastructure, poverty, economic geography, rural roads, impact evaluation, non-agricultural employment.</span><p class=MsoNormal style='text-align:justify'><span lang=EN-US>This study provides a conceptual framework to</span><span lang=EN-GB style='mso-ansi-language: EN-GB'>analyse</span><span lang=EN-US>the impact of rural infrastructure investment on market development for the enhancement of income generating opportunities for the poor in rural</span><st1:country-region><st1:place><span lang=EN-US>Peru</span></st1:place></st1:country-region><span lang=EN-US>. The study uses descriptive methods and regression analysis together with relatively new impact evaluation techniques, like propensity score matching, to understand the causal paths through which access to new or improved infrastructure services affects the livelihood strategies and livelihood outcomes of rural households. The data sources used in this study include regional time series data, several cross-section household level data sets coming from rural representative Living Standard Measurement Surveys,<span class=GramE>a</span>household panel data set coming from the same source, together with specialized surveys developed by the author. The analysis shows that there are important complementarities in rural infrastructure investment. While any particular infrastructure investment (related to roads, electricity, telecommunication, water, or sanitation services) may be subject to diminishing returns, if done in isolation, this effect can be overcome if it takes place in combination with other investments. In this way it is possible to get a sustained growth effect on rural incomes from infrastructure investment. The study shows that infrastructure investments reduce transaction costs and enhance the opportunity for spatial arbitrage, paving the way for improving market efficiency. However, the study warns that efficiency and equity gains may not occur simultaneously, because those that are better off in rural areas may obtain higher returns to infrastructure investments because of a larger private asset base or because of a better access to other public infrastructure