2 CHAPTER 1


source. However, given the lack of clarity of the underlying mechanism of public investment decisions and attendant data problems in estimating the impact of public investments, the approach followed in this research mono- graph is to analyze the sensitivity of these estimates based on alternative data sources and methodological approaches. We point out the limitations of differ- ent methodologies but underscore that all currently available methodologies for estimating the impact of publicly funded rural infrastructure and services have some defects. The use of cross-sectional and panel data sources yields a range of estimates of the impact of access to infrastructure and services and reduces the risk of using a narrower set of results driven primarily by data source or methodology. The convergence of results across methods and data sources con- tributes to the confidence with which we can draw conclusions. These results are interpreted in a historical context and in consultation with national stake- holders, which also increases our confidence in these results. The monograph is arranged as follows. In Chapter 2, trends in the agricul- tural sector are assessed. Chapter 3 reviews agricultural public expenditure and its priority relative to other spending. Based on these reviews, we then discuss our econometric identification strategy and estimate the impact of publicly funded rural infrastructure and extension services. Chapter 3 also discusses the policymaking process in Nepal in light of the current political situation and the impact of conflict on public expenditure allocation. Apart from the impact of the political process on the allocation of public expendi- ture to the agricultural sector, the implementation of programs funded has been disrupted because of ongoing conflict. The conflict has affected access to infrastructure and extension services because of the increased difficulty to government workers of implementing projects in conflict zones because of either the unwillingness of government staff to be posted in conflict areas or their inability to travel to certain parts of the district because of threats of violence, as well as the delay in the transfer of funds to district officials from the central government. Chapter 4 lays out the analytical framework to evaluate the impact of access to agricultural extension, irrigation, and rural roads using a hedonic approach. We also present the results of the hedonic approach in this chapter. In Chapter 5, the results of a panel data approach are presented after detailing the econometric approach. Overall conclusions are presented in Chapter 6.


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