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The Effects of Land Markets on Resource Allocation and Agricultural Productivity

Author

Listed:
  • Chaoran Chen
  • Diego Restuccia
  • Raul Santaeulalia-Llopis

Abstract

We assess the effects of land markets on misallocation and productivity by exploiting policy-driven variation in land rentals across time and space arising from a large-scale land certification reform in Ethiopia, where land remains owned by the state. Our main finding from detailed micro panel data is that land rentals substantially reduce misallocation and increase agricultural productivity. Our evidence builds from an empirical difference-in-difference strategy, an instrumental variable approach, and a calibrated quantitative macroeconomic framework with heterogeneous household-farms that replicates, without targeting, the empirical effects. These effects are nonlinear, impacting more farms farther away from efficient operational scale, consistent with our theory. Using our model, we find that more active land markets reduce inequality, an important concern for the design of land policy. We also find that the positive effects of land markets are mainly driven by formal market rentals as opposed to informal rentals. Finally, our analysis also provides evidence that land markets increase the adoption of more advanced technologies such as the use of fertilizers.

Suggested Citation

  • Chaoran Chen & Diego Restuccia & Raul Santaeulalia-Llopis, 2019. "The Effects of Land Markets on Resource Allocation and Agricultural Productivity," Working Papers tecipa-649, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:tecipa-649
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    File URL: https://www.economics.utoronto.ca/public/workingPapers/tecipa-649.pdf
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    More about this item

    Keywords

    Land markets; rentals; effects; misallocation; productivity; inequality; micro data; quantitative macro; informal markets; technology; fertilizers.;

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • 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
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • Q10 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - General
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy
    • Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium

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