Property rights, land circulation and off-farm labor supply: evidence from a land tenure reform in China

Abstract

Weak property rights over land prevent efficient allocation of production factors in the developing world. Farmers who lack title secure access to the land they work by providing evidence of productive use. The ``use it or lose it'' principle leads to a thin land rental market and a misallocation of labor between economic sectors. Leverage a land tenure reform in China starting in the late 1990s, I investigate the extent to which secure property rights increase allocative efficiency of land and labor. I exploit implementation of land policies with staggered timing to show that secure property rights led to 1) more land rental participants and a higher share of rented farmland and 2) a reallocation of rural labor towards the non-farm sector. To examine if there is a redistribution of farmland to productive farmers, I estimate a discrete choice model in which leases are categorized based on the relationships between landlords and tenants. The estimation shows that secure property rights lead to landlord-tenant matches that are less driven by relationship and location, indicating a more efficient allocation of land. I further apply the model to labor allocation and find that off-farm workers are more likely to migrate out of their hometowns than to work locally. I finally estimate the welfare impact of the land reform and find that a one standard deviation increase in land right intensity leads to 25\% increase in durable goods consumption.