Factors affecting entry and intensity in informal rental land markets in Southern Ethiopian highlands

Abstract

AbstractInformal land transactions, particularly rental land markets, are emerging in rural Ethiopia in response to the inadequacies of the administratively based land distribution system to meet the growing demand for land and correct imbalances in factor proportions at the farm level. These informal land markets provide a vehicle to equalise factor proportions at the farm level and to improve productivity and hence households' welfare. Among the farmers who lease out land, those who live in the highland‐areas, where land is scarce and unequal, are more likely to engage in these markets. Increases in the size of land holdings relative to labour and livestock ownership, the number of non‐working household members and pressure for subsistence increase the likelihood of leasing out land. On the other hand, increases in the number of working adults, improved nutritional status and greater wealth affect negatively the supply of land into these markets. The potential exists for these markets to improve factor equalisation, reduce inequality in land holdings, and shift the income position of participating households. However, success depends on whether other factor markets are functioning to thwart forced disposal of land to meet subsistence. Public policy has pivotal role in fostering the growth of these markets and their land transfer and factor equalisation functions by ensuring their legally enforceable status, and removing legal restrictions that constrain choices of contracts and trading over greater distances. In addition, both long and short‐term policy measures are needed to reduce the extent to which poor farmers engage in distress transactions.