A major road sector investment program has been under way in Ethiopia since 1997 which led to
significant improvement in road accessibility. As a low-income country with no railway and water
transport systems, road transport is of ultimate importance for the Ethiopian economy. The
purpose of this paper is to assess empirically the effect of this public investment program on the
welfare of rural households in Ethiopia. It looks specifically at the rate of poverty reduction and
growth rate of household consumption in response to change in road accessibility. The paper
combines a panel data of rural households in Ethiopia with a provincial level panel data of road
density to estimate the impact of road on poverty and consumption. Alternative econometric
estimation methods have been used to assess the robustness of the association between road
infrastructure and rural wellbeing. After controlling for household characteristics and geographic
determinants of economic performance, we find that the poverty headcount ratio declines with
improvement in road accessibility of rural villages. The study also shows that better road
connectivity not only increases the likelihood of crossing over the poverty line but also enhances
the rate consumption growth significantly. The study went further to examine some of the
mechanisms through which road might improve the standard of living in rural areas. We find that
rural households with better road network are not only more likely to use modern fertilizers but
they also make intensive use of fertilizers. Moreover, the paper finds evidence that the overall
productivity of farm households increases significantly with the degree of road access