The Productivity Impacts of Formal and Informal Land Rights

Abstract

There is an important literature on the causal relationship flowing from the quality of institutions to economic performance. This paper studies this relationship at the micro level by looking at the productivity impacts of land rights. Whereas previous studies used proxies for soil quality and instrumental variables to control for the endogeneity of land titles, the data used here include soil quality measurements, which allow controlling for the unobserved heterogeneity between plots. Results suggest that formal rights (i.e., land titles) have no impact but informal rights (i.e., landowners’ perceptions of what they can do with their plots) have heterogeneous impacts on productivity. Alternative specifications are also estimated so as to (i) separate the reduced-form causal impacts of land rights from the mechanisms through which land rights affect productivity; and (ii) assess the limits to the internal and external validity of the empirical results.