Expropriation, compensation and transitions to new livelihoods: Evidence from an expropriation in Ethiopia

Government intervention in land transactions is common in developing countries, especially where land markets function poorly. This is the case in Ethiopia, where expropriation of farmland from small-scale farmers has been used by all levels of government as a tool for providing new land for industrial investors, commercial agriculture and expanding cities. This paper evaluates the impact of such a policy on a group of small-scale farmers whose land has been taken to make room for a large factory. Baseline data was collected in the year before expropriation and a follow up survey was conducted 8 months after households lost their land and received payment. On average, household lose 70% of their land and receive compensation payments that are about 5 times the value of annual consumption expenditure. I find that households in the treatment group increase their consumption, start more businesses and participate more in non-farm activities than households that do not lose farmland. These households also reallocate their livestock portfolios away from oxen and towards small ruminants and cattle, reflecting a shift away from growing crops. However, all of these changes are relatively minor compared to the increase in savings: with the exception of a few households, most of the compensation payment is left in the bank.