This paper estimates two sources of benefits, one direct and the other external, 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. Using a sample of children under 48 months in rural areas of India, it finds evidence of positive and significant direct and concave positive external effects.
- A child who moves from a household without improved sanitation and a low ratio of village access to a household with improved sanitation and a high ratio of village access enjoys a reduction in diarrhea prevalence of 47 percent.
- Gaining access to improved sanitation reduces the average prevalence of diarrhea among children by 10 percent.
- The positive externalities are only enjoyed after a certain level of sanitation coverage has been achieved (90 percent coverage) while half of the potential total gains are only reached when coverage is approximately 75 percent.
- External benefits is largely responsible for the health improvements in overall reductions of diarrhea prevalence.
- There is no significant difference in terms of health outcomes between children living in households whose members practice open defecation and those who are living in households with unimproved sanitation. The gains are only for children who live in households with access to improved sanitation.