Abstract
While scholars long recognized the importance of land markets as a key driver of rural non-farm development and transformation in rural areas, evidence on the extent of their operation and the nature of participants remains limited. We use household data from 6 countries to show that there is great potential for such markets to increase productivity and equalize factor ratios. While rental markets transfer land to land-poor and labor-rich producers, their operation and thus impact may be constrained by policy restrictions. Their functioning may also be constrained by ill-defined or insecure rights that may arise from failure to fully compensate existing rights in cases of expropriation, a failure to implement more broadly land policies or to do so in a gender sensitive manner. Methodological and substantive conclusions are derived.
Highlights
Scholars and policy makers alike have long recognized the importance of secure land tenure for sustainable land management, productivity-enhancing investment, operation of land markets that transfer land to its best and most productive use, and eventually of access to credit markets by using land as a collateral (Besley and Ghatak, 2010)
In addition to affirming the scope for sizeable gains in equity and potentially efficiency from better functioning of land rental markets, we go beyond the existing literature, and we formulate: (i) hypotheses regarding obstacles to land market functioning that warrant discussion with policy makers and should be subjected to further empirical tests, and (ii) we suggest variables to include in future surveys that could inform such debates
For Ethiopia, a commercial farm survey is available which puts the total area held by operational commercial farms at 1.55 million hectares (Ali et al, 2015b), compared to 9.2 million hectares cultivated by smallholders so that our data would account for some 85% of the land used for agriculture in the country
Summary
Scholars and policy makers alike have long recognized the importance of secure land tenure for sustainable land management, productivity-enhancing investment, operation of land markets that transfer land to its best and most productive use, and eventually of access to credit markets by using land as a collateral (Besley and Ghatak, 2010). Given the continent’s traditional features including relative land abundance and producers’ use of rather simple un-mechanized technology with reliance on family labor, it is generally believed there is little scope for large investment that would require access to credit This would imply limited scope for productivity differences across producers and for land (rental) markets to improve productivity. As in commonly found, factor markets are imperfect (Dillon and Barrett, 2017) but production is labor- intensive with an inverse relationship between farm size and productivity, this will increase productivity All of this implies that, in countries undergoing rapid economic change, regular and reliable data will be important to inform policy to indicate if reality still corresponds to common wisdom and improve understanding of drivers and potential obstacles to structural transformation and growth of the rural non-farm economy.
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