Land Reallocation in an Agrarian Transition

Abstract

Liberalising key factor markets is a crucial step in the transition from a socialist control-economy to a market economy. However, the process can be stalled by imperfect information, high transaction costs and covert resistance from entrenched interests. The article studies agricultural land reallocation in the wake of Vietnam's efforts to establish a free market in land-use rights following de-collectivisation. Inefficiencies in the initial administrative allocation are measured against an explicit counterfactual. Land allocation responded positively but slowly to the initial inefficiencies. There is no sign that the transition favoured the land rich or that it was thwarted by local officials. Vietnam's agrarian transition has closely followed a now classic policy scenario for economies in transition. First one privatises the main productive assets - in this case agricultural land-use rights - then one legalises their free exchange. In the first step, the de-collectivisation of Vietnam's agriculture meant that the land that had previously been farmed collectively was to be allocated by administrative means across households within each commune. Without a market mechanism to guide the process, it can be expected that inefficiencies in land allocation would remain, with some households having too much land relative to a competitive market allocation and some too little. Ravallion and van de Walle (2004) document evidence of such inefficiencies in the initial administrative allocation at the time of de-collectivisation.