Factors affecting renting in and renting out of land in a semi-arid economy of Tigrai, northern Ethiopia: a generalized random effect order probit model

In the absence of land sale, the emerging of land rental market among smallholder farmers in developing countries has important implications on land use efficiency, productivity and poverty reduction. The purpose of this study is to analyze jointly the socio-economic factors undertaking decisions renting in and renting out of land in a land scarce and semi-arid economy of Tigrai, northern Ethiopia, using a generalized random effect order probit model. The model result reveals that decisions to rent in and/or rent out of land are significantly correlated, implying that standard order probit model analysis of such decisions are biased, thereby, justifying the use of a generalized random effect order probit approach. Model results show that some of the socio-economic factors affect farmers’ renting in and renting out of land and work in the opposite directions. The likelihood of renting in land is high for farmers with better literacy rate and lived closer to the land. On the other hand, the likelihood of renting out of land is high among the illiterate farmers and lived far distant to their lands. Government policy has an important role to play in improving the factor equalization role of the land rental markets through investment in human capital and infrastructural development.