Does spatial proximity to small towns matter for rural livelihoods? A propensity score matching analysis in Ethiopia

The spatial dimension of rural–urban linkage has become a new subject of debate in regional development. In most empirical research the focus has usually been on the role of small urban centers in rural development. However, the effects of different particulars of the linkage such as spatial proximity to small towns on income of the hinterlands’ people have been less explored. The central purpose of this paper is, hence, assessing the effect of spatial proximity to small towns on income of the people living in the surrounding rural hinterlands. It also provides a bird’s-eye view of the livelihood strategies used by rural households in using town services. A propensity score matching technique is employed to estimate the effects. It is apparent in the results of the study that, controlling for other confounding factors, spatial proximity to small towns has a significantly positive effect on the income of the people living in the surrounding hinterlands. This notion indirectly leads the households living in the farthest hinterlands to adopt a new coping mechanism, i.e. enhancing their social proximity in a way that compensates the opportunity lost as a result of physical distance.