Population, Income, and Farmland Pricing in an Open Economy

Huijian Dong,Xiaomin Guo

doi:10.3390/ijfs8040067

Abstract

Farmland valuation models usually incorporate local purchasing power as one of the pricing factors. A plausible rationale is that a larger population and higher income per capita imply increasing demand for agricultural products and farmland. In this paper, we study the relationship between the agricultural land prices, the regional population, and income per capita in an open economy setting in nominal and real variable terms using data from 1929 to 2018 at the state level. We show that in most areas of the United States, agricultural land prices are less affected by the state population or personal income. The valuation of agricultural land should not factor in the local purchasing power factors, with a few exceptions.

Highlights

Conventional pricing models believe that agricultural land values of an area are usually determined by a series of factors at the regional level: local purchasing power, land productivity, and land market demand and supply interactions
In an open economy, how important are population and purchasing power related to the farmland price? how are the farmland prices in the United States related to the population and income per capita? Our study aims to address these questions
The results show that the change of state income per capita better explains the change of farmland price over time, whereas the results are mixed for the impact of population change

Summary

Introduction

Conventional pricing models believe that agricultural land values of an area are usually determined by a series of factors at the regional level: local purchasing power, land productivity, and land market demand and supply interactions. Past studies either address the influence of individual microeconomic variables, such as distance to highway, water accessibility, and environmental factors or investigate the influence of transactions and demand for agricultural products. Recognizing the mobility of capital as well as population brings the survey of farmland price to a greater picture that considers states in the U.S as a general factor and product market This universal market idea avoids the robustness concern that a set of farmland value determinants in one region is less valid in a different area.

The Model and Method

Data and Regressions

Results from Empirical Evidence

Concluding Remarks