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Do land market restrictions hinder structural change in a rural economy ? evidence from Sri Lanka

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  • Emran,M. Shahe
  • Shilpi,Forhad J.
  • Emran,M. Shahe
  • Shilpi,Forhad J.

Abstract

This paper analyzes the effects of land market restrictions on structural change from agriculture to non-farm in a rural economy. This paper develops a theoretical model that focuses on higher migration costs due to restrictions on alienability, and identifies the possibility of a reverse structural change where the share of nonagricultural employment declines. The reverse structural change can occur under plausible conditions: if demand for the non-agricultural good is income-inelastic (assuming the non-farm good is non-tradable), or non-agriculture is less labor intensive relative to agriculture (assuming the non-farm good is tradable). For identification, this paper exploits a natural experiment in Sri Lanka where historical malaria played a unique role in land policy. The empirical evidence indicates significant adverse effects of land restrictions on manufacturing and services employment, rural wages, and per capita household consumption. The evidence on the disaggregated occupational choices suggests that land restrictions increase wage employment in agriculture, but reduce it in manufacturing and services, with no perceptible effects on self-employment in non-agriculture. The results are consistent with the migration costs model, but contradict two widely discussed alternative mechanisms: collateral effect and property rights insecurity. This paper also provides direct evidence in favor of the migration costs mechanism.

Suggested Citation

  • Emran,M. Shahe & Shilpi,Forhad J. & Emran,M. Shahe & Shilpi,Forhad J., 2015. "Do land market restrictions hinder structural change in a rural economy ? evidence from Sri Lanka," Policy Research Working Paper Series 7525, The World Bank.
  • Handle: RePEc:wbk:wbrwps:7525
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    Cited by:

    1. Douglas Gollin & Christopher Udry, 2021. "Heterogeneity, Measurement Error, and Misallocation: Evidence from African Agriculture," Journal of Political Economy, University of Chicago Press, vol. 129(1), pages 1-80.

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    More about this item

    Keywords

    Communicable Diseases; Malaria; Cholera; Leprosy; Food Security; Employment and Unemployment; Common Carriers Industry; General Manufacturing; Construction Industry; Food&Beverage Industry; Textiles; Apparel&Leather Industry; Pulp&Paper Industry; Plastics&Rubber Industry; Business Cycles and Stabilization Policies; Regulatory Regimes; Legislation; Legal Reform; Judicial System Reform; Social Policy; Common Property Resource Development; Legal Products;
    All these keywords.

    JEL classification:

    • J4 - Labor and Demographic Economics - - Particular Labor Markets
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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