Determinants and Impacts of Rural Land Market Activity: Evidence from Nicaragua

Abstract

Use of data from Nicaragua to examine the performance of land rental and sales markets during 1995–98 which coincide with the implementation of major macroeconomic and sectoral reforms leads to three main conclusions. First, even though the data point toward an inverse farm-size productivity relationship and large differences in land productivity between large and small producers, land markets have not led to an equalization of returns among the groups considered. Second, both in 1995 and in 1998, land sales markets have contributed to land concentration, suggesting that credit market imperfections impeded demand in land sales markets. Third, the policy reforms undertaken after 1995 have led to a structural shift in the performance of the land rental market; instead of transferring land to large owners, as it did in 1995, the land market now moves land from large to small producers. The quantities involved however, remain limited. We conclude that, if it is to contribute to equity and efficiency, liberalization of land sales markets has to be complemented by measures to reduce the attractiveness of speculative land accumulation. Furthermore, measures to reduce the transaction costs of land rental (e.g., titling) and to increase effective demand from small producers (e.g., technical assistance and credit) will be needed.