Sanitation and externalities: evidence from early childhood health in rural India

This paper estimates two sources of benefits related to sanitation infrastructure access on early childhood health: a direct benefit a household receives when moving from open to fixed-point defecation or from unimproved sanitation to improved sanitation, and an external benefit (externality) produced by the neighborhood's access to sanitation infrastructure. The paper uses a sample of children under 48 months in rural areas of India from the Third Round of District Level Household Survey 2007-08 and finds evidence of positive and significant direct benefits and concave positive external effects for both improved sanitation and fixed-point defecation. There is a 47 percent reduction in diarrhea prevalence between children living in a household without access to improved sanitation in a village without coverage of improved sanitation and children living in a household with access to improved sanitation in a village with complete coverage. One-fourth of this benefit is due to the direct benefit leaving the rest to external gains. Finally, all the benefits from eliminating open defecation come from improved sanitation and not other sanitation solutions.