Agrarian Structures, Urbanization, and Inequality

This study examines the impact of agrarian structures on income inequality over the long run. First, it exhibits the relationship between land and income distribution by developing a theoretical model based on Harris and Todaro (1970) and Lewis (1954). High land inequality increases income Gini coefficients in the urban sector as well as the rural sector, not only by creating congestion in the urban subsistence sector, but also by feeding the growth of the urban reserve army of labor, which pulls down the wages in the urban capitalist sector. Next, the study investigates the empirical relationship between land inequality, level of urbanization and income inequality using cross country datasets. The estimation results support the theoretical model and indicate that the level of land inequality has a significant impact on determining the level of urbanization, and urban and overall income inequalities. Moreover, the analysis finds that overurbanization increases income inequality. The empirical analysis controls for institutional factors like education inequality and the level of democracy. The results present a stronger evidence on the land inequality’s influence through urbanization than through education and democracy. These results suggest that policymakers should have a broader view as to the importance of agrarian policies. A progressive land reform or/and subsidies protecting small peasantry can also reduce urban income inequality and poverty over the long run.