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The Effects of Land Markets on Resource Allocation and Agricultural Productivity

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  • Chaoran Chen
  • Diego Restuccia
  • Raul Santaeulalia-Llopis

Abstract

We assess the role of land markets on factor misallocation in Ethiopia--where land is owned by the state--by exploiting policy-driven variation in land rentals across time and space arising from a recent land certification reform. Our main finding from detailed micro data is that land rentals significantly reduce misallocation and increase agricultural productivity. These effects are nonlinear across farms--impacting more those farms farther away from their efficient operational scale. The effect of land rentals on productivity is 70 percent larger when controlling for non-market rentals--those with a pre-harvest rental rate of zero. Land rentals significantly increase the adoption of new technologies, especially fertilizer use.

Suggested Citation

  • Chaoran Chen & Diego Restuccia & Raul Santaeulalia-Llopis, 2017. "The Effects of Land Markets on Resource Allocation and Agricultural Productivity," Working Papers tecipa-592, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:tecipa-592
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    Cited by:

    1. De Magalhães, Leandro & Santaeulàlia-Llopis, Raül, 2018. "The consumption, income, and wealth of the poorest: An empirical analysis of economic inequality in rural and urban Sub-Saharan Africa for macroeconomists," Journal of Development Economics, Elsevier, vol. 134(C), pages 350-371.
    2. Luciano Ayala-cantu & Bruno Morando, 2018. "Rental markets, gender, and land certificates: Evidence from Vietnam," WIDER Working Paper Series 96, World Institute for Development Economic Research (UNU-WIDER).
    3. Diego Restuccia & Richard Rogerson, 2017. "The Causes and Costs of Misallocation," Journal of Economic Perspectives, American Economic Association, vol. 31(3), pages 151-174, Summer.
    4. Nith, Kosal & Ly, Singhong, 2018. "Reinvigorating Cambodian agriculture: Transforming from extensive to intensive agriculture," MPRA Paper 93091, University Library of Munich, Germany, revised 23 Dec 2018.
    5. Ayala-Cantu, Luciano & Morando, Bruno, 2020. "Rental markets, gender, and land certificates: Evidence from Vietnam," Food Policy, Elsevier, vol. 94(C).
    6. Tasso Adamopoulos & Diego Restuccia, 2020. "Land Reform and Productivity: A Quantitative Analysis with Micro Data," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(3), pages 1-39, July.
    7. Gottlieb, Charles & Grobovšek, Jan, 2019. "Communal land and agricultural productivity," Journal of Development Economics, Elsevier, vol. 138(C), pages 135-152.
    8. Le, Kien, 2020. "Land use restrictions, misallocation in agriculture, and aggregate productivity in Vietnam," Journal of Development Economics, Elsevier, vol. 145(C).
    9. Chen, Chaoran, 2020. "Technology adoption, capital deepening, and international productivity differences," Journal of Development Economics, Elsevier, vol. 143(C).
    10. Marina Mendes Tavares & Diego Restuccia & Jose-Maria Da-Rocha, 2014. "Policy Distortions and Aggregate Productivity with Endogenous Establishment-Level Productivity," 2014 Meeting Papers 1196, Society for Economic Dynamics.
    11. Luciano Ayala Cantu & Bruno Morando, 2018. "Rental markets, gender, and land certificates: Evidence from Vietnam," WIDER Working Paper Series wp-2018-96, World Institute for Development Economic Research (UNU-WIDER).
    12. Nith, Kosal & Ly, Singhong, 2018. "Reinvigorating Cambodian agriculture: Transforming from extensive to intensive agriculture," MPRA Paper 93086, University Library of Munich, Germany, revised 23 Dec 2018.
    13. Fu, Shihe & Xu, Xiaocong & Zhang, Junfu, 2021. "Land conversion across cities in China," Regional Science and Urban Economics, Elsevier, vol. 87(C).
    14. World Bank Group, "undated". "Africa's Pulse, No. 18, October 2018," World Bank Other Operational Studies 30455, The World Bank.
    15. Hernandez, M. & Britos, B. & Robles, M. & Trupkin, D., 2018. "Land market distortions: Theory and evidence from Guatemala," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277031, International Association of Agricultural Economists.
    16. A.V. Chari & Elaine Liu & Shing-Yi Wang & Yongxiang Wang, 2017. "Property Rights, Land Misallocation and Agricultural Efficiency in China," Working Papers 2017-091, Human Capital and Economic Opportunity Working Group.
    17. Fei, Xuan, 2020. "The misallocation in the Chinese land market," BOFIT Discussion Papers 23/2020, Bank of Finland, Institute for Economies in Transition.
    18. Britos, Braulio & Hernandez, Manuel A. & Robles, Miguel & Trupkin, Danilo R., 2020. "Land market distortions and aggregate agricultural productivity: Evidence from Guatemala," IFPRI discussion papers 1969, International Food Policy Research Institute (IFPRI).

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    More about this item

    Keywords

    Productivity; agriculture; land markets; rentals; misallocation; micro data.;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • Q1 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture

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