Impact of infrastructure improvements in India

Assessing reality of ‘trickle-down’ benefits of greater connectivity for rural households

The challenge

Increasing infrastructure investment is a key growth strategy in many developing countries; policy debates emphasise the ‘trickle-down’ benefits of such investment. However, there is a gap in our understanding of what type of infrastructure affects individuals’ ability to actualise such opportunities. It is also imperative to understand whether infrastructure improvements disproportionately benefit the rich (who could perhaps better exploit resulting opportunities), or benefit the previously-excluded poor.

The intervention

This project will exploit quasi-experimental variation generated by policy rules in India which created nearly random comparison groups (villages) that received different types of infrastructure at different points in time. Specifically, it will focus on understanding the impact of public provision of critical infrastructures such as rural roads and rural electrification. The programme rules provide discontinuities in the probability of receiving infrastructure at multiple village population thresholds, which will be exploited using a fuzzy regression discontinuity design.

The impact

Findings will be informative to policymakers who frequently advocate the ‘trickle-down’ benefits of better connectivity for rural households. The project also aims to shed light on the long-term effects of infrastructure investments and how the complementarities between them interact with local institutions. In doing so, the study will further our understanding of the barriers to the progress of rural societies, and whether infrastructure improvements have the potential to mitigate lack of social mobility among certain strata of the society.

Co-authors

  • Sumit Agarwal, Low Tuck Kwong Distinguished Professor of Finance, National University of Singapore Business School
  • Abhiroop Mukherjee, Liwei Huang Associate Professor of Business, Hong Kong University of Science and Technology

Lakshmi Naaraayanan is Assistant Professor of Finance at London Business School. Lakshmi’s research interests lie in empirical corporate finance, including corporate governance, entrepreneurship, financial intermediation and socially responsible investing. His research has won several awards, including the Moskowitz Prize for his research on sustainable and responsible investing. His work has featured in numerous media and policy outlets, including The Financial Express, Forbes magazine, Oxford Business Law Blog, and the World Bank.

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