Why infrastructure matters at micro level?

In assessing the impacts on the livelihoods of rural people, sample households and their villages can be grouped into three groups: (a) 'developed' - where both paved roads and access to electricity exist; (b) 'semi-developed' with either paved road or the access to electricity, and (c) 'under-developed' having access to none of the facilities. During the last two decades, the share of developed villages appear to have more than tripled. Conversely, it can be argued that the share of semi- or under-developed villages has decreased during the same period.  
To begin with, we can look at the link between infrastructural development and crop production in sample villages. It is obvious that access to paved roads and electricity would affect the crop sector as procurement of inputs and disposal of marketed outputs are affected by such developments. Cropping intensity is estimated to be higher in developed villages compared to semi- and under-developed village. In fact, two decades back, just the reversed happened when these villages were falling behind in terms of cropping intensity. The reason may be that, due to paved roads, developed villages could get inputs in right time and at right prices. Second, we notice that the proportion of irrigated land has doubled in developed villages due to better infrastructure. But such mentionable increase was not the case in other villages. Again, developed villages surpassed all in terms of the adoption of modern technologies. Needless to mention, infrastructural development in those villages has facilitated timely availability of inputs, marketing opportunities and extension services. And finally, over time, yield of paddy has increased by 69 per cent, which is much higher than others. Therefore, it appears that rural infrastructure, such as paved roads and electricity, has a close link with productivity.
The welfare of rural households also depends on the accumulation of assets over time. The accumulation may take place in both agricultural and non-agricultural sectors. We observe that endowment of fixed agricultural asset is relatively low in developed villages, even the accumulation there seems to have decreased. But in the case of non-agricultural fixed capital, all villages witnessed positive growth but the rate of growth is relatively very high in developed villages. In other words, where infrastructure is developed, the need for and the accumulation of non-agricultural capital also remain high. On the other hand, as infrastructure has developed, the share of households accessing credit has also vastly increased over time.  In fact, the change is evident in other villages but not as remarkably as in developed villages. Again, taking credit availability per household as a criterion in our analysis, we observe no major deviation in the trend. That means, credit availability per household is relatively high in developed villages.
We should remember that accumulation of assets is just a necessary condition in enhancing welfare of households; the sufficient condition is the productivity levels of assets so accumulated. If productivity - also called output per unit - goes up, the households can enhance welfare by economising the use of scarce resources.  We note that, compared to a semi- or under-developed village, the average per capita income in a developed village is 1.5 times higher than others. But this is not the only good news. Over time, the rate of increase in per capita income in developed villages stood at 7.0 per cent per year as against only 3-4 per cent in other villages. What is even more interesting, the per capita income of developed households was lower than others in the base year; but the access to roads and electricity has tremendously raised the per capita income of non-agricultural labour. The reasons are not far to seek. Infrastructural facilities create opportunities for income generation, deepen market access and develop social indicators. Therefore, from a policy point of view, there is presumably no substitute for infrastructural facilities in raising income in rural areas.
One of the primary impacts of infrastructure may fall on the occupational mobility of the workforce in villages. Roads and electricity are supposed to enable the workers to work for more hours, help undertake productive pursuits and, above all, increase information available about work opportunities. The most important effect, however, is the expansion of non-farm activities where surplus labour from agriculture can be absorbed.
We observe that, and as has been said before, agriculture has lost its importance as primary occupation irrespective of developed or under-developed villages. The space has been occupied by the non-agricultural activities. Existing studies on rural development provide some insightful observations on this 'transformation'. But what is new to us is the observation that, as in other societies, infrastructural development seems to inject pace in this transformation. For example, developed villages are reported to lean more on non-agriculture than semi- or under-developed villages. Again, within agriculture, the proportion of workers engaged in cultivation and wage labour is relatively low and has fallen over time.  Thus, the more the access to paved roads and electricity, the more visible becomes the occupational mobility from cultivation and agricultural wage labour to trade/business and to other non-agricultural activities. The findings seem to be in consort with that observed in other countries, especially in India and China. Second, in terms of multiple occupations, we observe that the degree is relatively low in developed villages. In fact, it increases with under- development of infrastructure. It is not surprising either as at lower level of income, people tend to be engaged in a number of occupations. On the other hand, infrastructure helps to get satisfactory level of income and given a satisfactory income, the substitution effect gets stronger. Thus, infrastructure not only helps raise income of the households but also enhances the opportunity for leisure for the workforce.
It is quite natural that infrastructure impacts upon consumption in rural areas through affecting income. In this context, we may refer to Engel's famous Law of Economics. We observe that, in bad or good times, households in developed villages consume relatively less of rice and more of wheat, fish and meat. Besides, expenses on education, housing and others are also relatively high. But definitely, the trend is not likely to be different for other years. That is, access to better infrastructure leads to higher per capita income of developed villages which, in turn, leads to higher consumption of non-rice items.
To reiterate, the main benefits of infrastructure come from marketing of inputs and outputs. Market orientation has increased over time more in developed than in other villages.  For example, the share of marketed paddy substantially increased in developed villages. On the other hand, distress sales in developed villages have drastically gone down. The reason may be that, factors that fuel distress sales have weakened in developed villages, possibly, due to infrastructural development.
The writer is Professor of Economics at Jahangirnagar University.
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