Land consolidation as one of the innovation policy instrument for small LGs: The case of Estonian agricultural farms

Abstract

Local governments (LGs) that are small and located in peripheral locations have several challenges to introduce policies for increasing local firms’ innovation activity compared to LGs located near agglomerations. This article reveals that one of the comparative advantages of small LGs is agricultural land. System failures are hindering the necessary innovativeness of farms and interventions at the local level. This article focuses on land consolidation as one possible intervention. Panel data consisting of 392 Estonian farms covering the years 2014 to 2019 were used to study the relationship between the farm structure measured by the area-weighted mean size of the parcels and the probability of implementing innovation activity. The result of the logit model with fixed effects shows that the structure of the farm and the probability to invest in buildings, machinery, equipment, and inventory are positively related. Small LGs can use this intervention for various aims and must consider environmental goals, country-specific planning systems, legislation, and farm owners’ willingness to participate in land consolidation.