The Fast Lane Out of Poverty

The road out of poverty can be long and winding for the urban poor in developing countries. But a recent study has found that governments can help their lowest-income citizens by simply paving the streets.

The research, by Marco Gonzalez-­Navarro, an economics professor at U of T Scarborough, and a colleague at the University of Oxford, found that upgrading local roads led to dramatic increases in household wealth.

Between 2006 and 2009, the researchers looked at the effect of 28 publicly financed road projects in Acayucan, Mexico, and compared those to 28 roads that didn’t receive upgrades. In addition to asphalt surfacing, the improvements included designated lanes, parking spaces and connections to the city street grid.

At the end of the three years, the value of land adjacent to the better roads had risen 72 per cent more than the land next to dirt roads, while property values (of house and land) were 17 per cent higher. Rents rose an additional 36 per cent.

The hike in property values also boosted credit use; residents with good roads were able to make twice as many home improvements as they could before, while vehicle and home appliance ownership also steadily increased.

Gonzalez-Navarro says it’s important to note that the increase in consumer purchases was a result of the increase in household wealth and not from relaxed credit constraints. “These households simply looked at their assets, realized they’re wealthier than before and decided to buy these goods.”

The study suggests that governments should consider infrastructure investment in addition to the common practice of direct cash payments to assist low-income earners. “There’s always a question in development economics about the best way to help the poor and improve their standard of living,” says Gonzalez-Navarro.