Improvement in Communal Property Rights, Collateralisability and Agriculture Productivity

Communal land tenure, which only grants partial property rights to farm operators, is adopted in many countries. Communal property rights thereby have a limited collateralizability to support credit transactions and thus can impede productivity. This paper provides an insight into how agricultural productivity responds to an improvement in property rights of communal land, that is, the endorsement of collateralizability. We exploited the farmland operational right (FOR) pilot reform in China in 2015, which allows operational rights of communal farmland to be utilised as collateral to obtain loans from banks. The findings suggest that the agricultural productivity was significantly increased by around 2 percent in pilot counties. The increased agricultural productivity appears to be associated with enhanced access to credit and improved transferability of communal farmland. Our analysis further reveals that local governments with stable fiscal sustainability and close connections to the provincial governments benefited greatly from the FOR pilot reform with respect to agricultural productivity. China provides an institutional innovation of lifting restrictions on communal property rights without fundamentally altering land ownership to other countries.