Essays on Impact of Infrastructure in the presence of market imperfections

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This dissertation is a collection of papers analyzing the effect of transport and credit infrastructure on the agricultural and non-agricultural sectors. Chapter 1 uses a partial equilibrium framework to isolate the effect of rural transport infrastructure improvement. It obtains an unbiased estimate of transport improvement on high yield variety technology adoption, a mechanism by which infrastructure improvement can affect agricultural return. It finds that although transportation infrastructure improvement significantly increases acreage for high yield variety rice, the acreage for local variety rice does not decrease but remains constant post improvement. The findings suggests there transport improvement needs to be complemented with other measures to yield complete adoption of improved agricultural technology.

Chapter 2 improves upon Chapter 1 and uses a rural market equilibrium framework to analyze the effect of rural transport infrastructure on agricultural productivity under perfect and imperfect markets. This chapter, using a theoretical model derives scenarios, (involving relative credit elasticity in the agricultural and non-agricultural sectors and elasticity of total stock of labor and capital in the rural market), under which agricultural productivity will be enhanced or deteriorated in the short run and long run under perfect and imperfect market scenarios. It empirically examines the effect of transport improvement on conditions that determine its effect on agricultural return and finds that transport improvement may increase, decrease or keep agricultural output constant depending on its effect on stock of capital and labor in rural markets.

Chapter 3 analyzes the role of access to finance in promoting the efficiency and growth of micro-enterprise activities and role of access to finance in participation of micro-enterprises. It finds that access to finance is a significant constraining factor in the growth of micro-enterprises and that the returns to capital invested in micro-enterprises are significantly higher than the interest rates charged by some of the micro-finance institutions that borrow from the government at low rates. The findings of this chapter indicates that there are big gains to be realized from expansion of access to credit to micro-enterprises at reasonable interest rates through the existing network of micro-finance institutions.