An Empirical Assessment of Rental Markets in Rural Pakistan

Ownership and access to land remains a long-standing issue of concern in Pakistan. The unequal land distribution is well documented. Although agriculture employs half of the country's workforce, an estimated 60% of rural households are landless. In this setting rental markets play an important role in facilitating access to land. In this paper, we empirically examine key factors that influence the amount of land rented in. Specifically, we explore the relationship between one's endowment of land and the amount of land rented in. We perform our analysis using the Pakistan Rural Household Panel Survey round 3.5 conducted by the International Food Policy Research Institute (IFPRI) in 2014–2015. The survey covers a wide range of topics including household characteristics, crop production, land management, farm assets, land inheritance and tenure security. Agricultural production activities are recorded for the Rabi season (2013–2014) and the Kharif season 2014. Of the 1027 household observations taken from the Punjab, Sindh and Khyber Pakhtunkhwa provinces in Pakistan, the average household's endowment of land is 3.4 acres. Our regression analysis indicates that households with larger endowments of land rent in less land. For an additional acre of land endowment, the amount rented in decreases by 0.32 acres. This number is economically significant given the high proportion of smallholdings and the prevalence of landlessness in Pakistan. Hence, households with smaller initial endowments of farmland rely more heavily on the rental market to achieve scale in food production. Additionally, we provide evidence that household size and asset ownership influence rental patterns. On average, an additional household member would increase the amount of land rented in by 0.12 acres. Tractor ownership also has a positive effect on the amount of land rented in. However, our regression estimates suggest that transaction costs are present in the farmland market thus preventing renters from reaching their optimal farm size. These results are relevant to ongoing efforts to support and enhance agricultural productivity in the region.