We examine the consequences of land tenure insecurity on economic growth in Brazil. We use an overlapping generations model with two sectors: an agricultural sector and a manufacturing sector. The technology in each sector relies on a specific production factor and labour: land is specific to the agricultural sector and capital goods are specific to the manufacturing sector. Moreover land is a fixed production factor. Saving takes the form either of land or capital goods purchases and saving composition depends on transaction costs generated by land tenure insecurity. It is shown that land tenure insecurity implies a decrease in land prices and a reallocation of saving in favour of capital goods. Two empirical restrictions can be tested on a panel of the Brazilian federation states: land tenure insecurity has a negative impact on land prices and a positive one on economic growth. Land tenure insecurity is proxied by the number of squatters. These two restrictions are not rejected.
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