Abstract

The main objective of this study is to investigate the economy-wide effect of improving road transport infrastructure. The study uses the updated and adjusted version of the 2005/2006 social accounting matrix of Ethiopia. The study applies a single country computable general equilibrium model. The simulation scenario is a reduction of trade and transport margin and an increase in the total factor productivity (TFP) of activities that produce trade and transport services due to public investment in road infrastructure (and hence better access to road infrastructure). The simulation results indicate that improving road transport infrastructure reduced the purchaser and supply price of marketed commodities. This facilitates transportation of commodities to the market and stimulates production; leading to an increase in domestic production in agriculture, trade, and manufacturing sector. The simulation results also indicate that expansion of road infrastructure results in welfare improvement among rural and urban households. Furthermore, better road transport infrastructure facilitates investment flow, foreign trade and hence accelerates economic growth (GDP) of the country. Therefore, public investment in road transport infrastructure should be considered as one of the policy pillars in the design of development policy and strategies of Ethiopia.

Key words: Road transport infrastructure, trade and transport margin, computable general equilibrium model, social accounting matrix, Ethiopia.