Highway-Induced Development: Evidence from Sri Lankan Household Sector

When transport investments are made in newly industrializing regions that are relatively infrastructure poor, the consequences extend beyond growth effects to some transformational changes. Induced transformation implies an emergence of a new socioeconomic market with new opportunities; this results in a change in the pattern of behavioral relationships within and among households, that is, with shifts in occupation, income, health, and education levels. This paper attempts to capture wider socioeconomic transformations induced by a highway improvement project in Sri Lanka. Specifically, it captures transformational changes in individual household structure with the use of two models: the income effect model and the demand function model. These models provide evidence of a shift in individual households’ incomes, consumption patterns, and underlying factors influencing their earning potentials—a shift toward occupations that are less land intensive and less labor intensive, and a shift toward skilled employment. The value of this research lies in the empirical estimation of the direction and magnitude of some of the consequent transformational changes as they pertain to Sri Lanka's household sector. In light of the observed results, it is likely that traditional infrastructure impact studies, by failing to incorporate transformational shifts, significantly underestimate project benefits and costs.