The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

Empirical Methods in Development Economics Land Rights in Developing Countries Thomas VENDRYES [email protected]

Master 2 Development Economics Univ. Paris 1 2016-2017

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The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

Introduction Land and land-related rights and institutions are a crucial dimension of development: At the micro-level: Land constitutes a fundamental asset for many households in developing countries; At the macro-level: Structural change radically alters the relationship of an economic system with its land. Objectives of this lecture: Present the importance of land rights in the process of development; Introduce to the different dimensions of land rights and land institutions, And to the debates on their consequences, Through a series of empirical examples.

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The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

Outline 1

The importance of land rights

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Usus

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Fructus

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Abusus

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Land rights (in)security

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Conclusion

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At the micro level At the macro level An institutional and political issue

Outline 1

The importance of land rights At the micro level At the macro level An institutional and political issue

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Usus

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Fructus

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Abusus

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Land rights (in)security

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Conclusion 4 / 46

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At the micro level At the macro level An institutional and political issue

Outline 1

The importance of land rights At the micro level At the macro level An institutional and political issue

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Usus

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Fructus

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Abusus

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At the micro level At the macro level An institutional and political issue

The importance of agriculture

Share of the labor force engaged in agriculture (%). Source: FAO (2015) 6 / 46

The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

At the micro level At the macro level An institutional and political issue

Land - a primary asset Share of hhs owning land (%) Hhs < 1$ per day Rural Urban Côte d’Ivoire Guatemala India - Hyderabad India - Udaipur Indonesia Mexico Nicaragua Pakistan Panama Peru South Africa Tanzania Timor Leste

62.7 36.7

57.3

Hhs < 2$ per day Rural Urban 58.7 38.8

17.6 98.9 49.6 4 50.4 30.4 85.1 65.5 1.4 92.3 95.2

10.7 37.1 15 1.5 8.6 0 71.9 89.8

68.4 20.2

98.9 5.9 2.3 47.9 35.1 70.5 66.8 5.5 91.7 92.6

13.9 35.2 11.5 1.6 0 8.8 2.5 61.2 60.3

Source: Banerjee and Duflo (2006) 7 / 46

The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

At the micro level At the macro level An institutional and political issue

Outline 1

The importance of land rights At the micro level At the macro level An institutional and political issue

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Usus

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Fructus

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Abusus

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The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

At the micro level At the macro level An institutional and political issue

Land and structural change

The relationship with land of an economic system radically changes as it develops, during the process of structural change: People leave agriculture and the countryside; Land turns to non-agricultural uses. ⇒ Land seems to become less important during the process of development, but it constitutes a crucial determinant of its pace and shape.

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At the micro level At the macro level An institutional and political issue

Structural change -1

Maddison (2001) 10 / 46

The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

At the micro level At the macro level An institutional and political issue

Structural change -2

(Liu et al., 2010)

Between 2000 and 2005, built-up land area increased by more than 1.7 millions hectares, 75% of which taken on cultivated land.

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The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

At the micro level At the macro level An institutional and political issue

Outline 1

The importance of land rights At the micro level At the macro level An institutional and political issue

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Usus

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Fructus

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Abusus

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The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

At the micro level At the macro level An institutional and political issue

An institutional and political issue

Land is not simply a physical good, it implies a bundle of rights, related to social, economic, political, etc., institutions. ⇒ Important issue for development policies. Illustrations: de Soto (2000) very influential thesis that well-defined land rights are the key to development. Since 2000, annual “Land and Poverty” conference at the World Bank;

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The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

At the micro level At the macro level An institutional and political issue

The dimensions of land rights Introduction to four dimensions of land rights presented here: The three dimensions of property rights over land in the civil law tradition, and their enforcement: Usus: the right to use; Fructus: the right to enjoy its fruits; Abusus: the right to transfer. Security: the robustness of aforementioned rights. These rights may be defined and allocated in may different ways, from public control to collective arrangements, and to private property. ⇒ Question here: Gains and costs of private land rights along these dimensions? 14 / 46

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Outline 1

The importance of land rights

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Usus

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Conclusion

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Individual land use rights: Benefits

Individual land use rights can lead to a better allocation of resources by extending the choice set of agents over their own land, in particular if they have specific information about the best use for their land and their labor. For example, Lin (1992) studies the dynamics of decollectivisation of Chinese agriculture between the end of the 1970s and the early 1980s: Progressive dismantling of the collectivist production structures of the “People’s Communes”; Gradual implementation of the “Household Responsibility System”, giving households more autonomy on the land plots they are granted.

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Lin (1992): Data Data at the province × year level, for the period 1978-1987 on agricultural production (volume and value) and its determinants: Inputs: Land, Labor, Capital, Fertiliser;

HRS expansion: proportion of households covered; Agricultural prices; Crop choices: multicropping and non-grain crops.

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Lin (1992): Methodology and results Methodology: “Growth accounting” approach, using: OLS; (Estimated) generalized least squares; Stochastic frontier. And including, when relevant: Province dummies; Time dummies; Time trend. Result: Changes in crop choices account for 48.69% of the (small) increase in agricultural output (4.21%) over the period 1984-1987.

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Individual land use rights: Costs However, agricultural production also entails externalities, as some resources (biomass, water, etc.) have the characteristics of a “common”. ⇒ Private land use rights can lead to a “tragedy of the commons” (Hardin, 1968).

Example: López (1997), on poor agricultural villages in west Ghana: Traditional production system: Alternation between cultivation (1-2 years) and fallow (4-10 years). Fallow sustains biomass, necessary for agricultural production: Through time, on a given plot; At a given time, for neighboring plots.

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The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

Biomass as a common good Biomass has the characteristics of a “common”, rival but non-excludable: Its benefits are shared, at the village-level; It’s affected by individual production decisions. ⇒ Issue: Is land use optimal at the collective level? At the village level, let’s denote by: YA the agricultural production; x the share of land actually farmed. x has two effects on Y , as an increase in farmed land: Allows to produce more; But decreases the amount of available biomass. ⇒ At the optimum:

∂YA ∂x

=0 20 / 46

The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

Data Data from the “Living Standard Survey”: Two years (1988-1989); 12 villages; 139 households. ⇒ Detailed data on: Agricultural production: Production, Labor, Tools, Fertiliser.

Households’ characteristics. Data on biomass from satellite imagery: Distribution, type and density of different kinds of vegetation. 21 / 46

The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

Strategy

Two steps strategy: 1

Estimation of the individual production function, in particular to get the impact of: Land; Biomass.

2

Evaluation of the elasticity of village-level agricultural production (YA ), w.r.t. the share of land cultivated (x).

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Results: Individual agricultural production

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Results: Collective agricultural production To assess optimality, one has to take into account: The share of land in fallow in a village; Land clearing costs; The collective discount rate. ⇒ Results:

(López, 1997)

With a discount rate of 10% and a land clearing cost of 12%: The optimal rate of land use is 22%, against 31% in reality; The income loss is of about 4%. 24 / 46

The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

Outline 1

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Usus

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Fructus

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Land rights (in)security

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Conclusion

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The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

Individual fructus rights: Benefits The right to enjoy the income from land should increase the incentives to use it in the most productive ways, and to put the most effort on it. ⇒ Benefits of the “residual claimancy”. Example: Lin (1992) (again) on Chinese agriculture over 1978-1987: In People’s Communes, agricultural workers were paid a wage; With the HRS, they become residual claimants on their plots. ⇒ Result: The gradual diffusion of the HRS contributes to almost half (48.69%) of the huge increase in agricultural production (42.23%) over the period 1978-1984, after accounting for all other factors.

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The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

Individual fructus rights: Limits However, in land tenancy relationships, sharecropping contracts between landlords and tenants are widespread, instead of pure rental contracts. One potential explanation (see for ex. Laffont and Matoussi, 1995) is that the contractual arrangement between the landlord and its tenant also covers the provision of other inputs, such as capital - and if the landlord provides capital, he may want its share of the production. Formally, if: α ∈ [0; 1] is the share of the production kept by the tenant, with: α = 0: pure wage contract; α = 1: pure rental contract.

Rt is the tenant’s working capital; Rl is the landlord’s working capital. ⇒ Theoretically, we should expect α to be positively correlated with Rt and negatively with Rl . 27 / 46

The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

Empirical illustration: Laffont and Matoussi (1995) Data: 170 plot × household observations in 1986, in El Oulja village, with detailed information on: Households (characteristics, wealth, income, etc.); Agricultural production (output and inputs); Contractual arrangements. Methodology: Ordered probit estimation, with: Dependent variable: 4 cases, ie α = 1/2; 2/3; 3/4; 1. Independent variables: Landlord’s working capital (Rl ); Tenant’s working capital (Rt ); Tenant’s wealth.

Result: A higher α is correlated with lower Rl and higher Rt . 28 / 46

The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

Allocation benefits The de Soto effect

Outline 1

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The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

Allocation benefits The de Soto effect

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The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

Allocation benefits The de Soto effect

Individual abusus rights: Benefits Individual abusus rights should allow to transfer land resources from less productive to more productive agents. ⇒ Better allocation of land resources. Example: Deininger and Jin (2005) on land markets in China. Data: 3 + 1 years panel data (1997-2001) on 1001 households in 3 Chinese provinces (110 villages), with information in particular on: Household characteristics; Agricultural production; Participation in land markets; (Administrative reallocations).

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Allocation benefits The de Soto effect

Deininger and Jin (2005): Methodology and results First step: Evaluate each household’s agricultural ability, as the intercept of a FE estimation of the agricultural production function at the household level. Second step: Estimate the impact on market participation of the: Household’s agricultural ability; Transaction costs, proxied by: Renting allowed by village leader; Share of hhs in village renting; Past rental experience.

Results (excerpt), for: Probability to rent in land (probit estimation); Area rented in (tobit estimation). ⇒ As expected, they are both positively affected by: A household’s agricultural ability; A decrease in transaction costs. 32 / 46

The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

Allocation benefits The de Soto effect

Individual abusus rights: Pitfalls

However, this allocative benefits of land transfers will be realized only if people transfer land for productive reasons. And in developing countries, credit constrained households can be forced to sell assets - including land - in case of adverse shocks, through “distress sales”. Example: André and Platteau (1998): Kanama commune in Rwanda; 56 households surveyed in 1998, 87 in 1993; Detailed information on land owning and transactions.

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Allocation benefits The de Soto effect

Motives for land sales and “distress sales”

André and Platteau (1998)

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The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

Allocation benefits The de Soto effect

Consequences Increase in inequalities

Multiplication of conflicts and increase in violence.

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The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

Allocation benefits The de Soto effect

Outline 1

The importance of land rights

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Fructus

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Abusus Allocation benefits The de Soto effect

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Land rights (in)security

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The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

Allocation benefits The de Soto effect

The de Soto effect The right to transfer land may also allow to use it as a collateral. ⇒ Very influential argument of de Soto (2000) that the formalization of land rights and the related possibility of “collateralization” are necessary to put life into the “dead capital” that land is. However, existing empirical evidence is not extremely supportive. Example: Brasselle, Gaspart, and Platteau (2002) on ' 200 households in Burkina-Faso (1996), with detailed information on households’ land rights. ⇒ No “collateralization” effect of transfer rights, for: No formal credit, No land markets.

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The issue of land rights (in)security

Besides the various dimensions of land rights (usus, fructus, abusus), the debate on land rights also focuses on the potential detrimental consequences of land rights insecurity, in particular on: Investment; Labour.

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Land rights insecurity and investment Land rights insecurity creates uncertainty on the time horizon for agents, who should tend to favor short-term investments at the expense of long-term ones. Example: Jacoby, Li, and Rozelle (2002) on fertilisers use in China (1995), where land plots can be reallocated by village authorities. Data: Survey of 727 farm households in 31 Chinese villages (Heilongjiang and Hebei provinces), with information in particular on: Household characteristics; Agricultural production; Non-farm activities; Village leaders; Plot-level information (contractual status, characteristics, etc.). 40 / 46

The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

Jacoby, Li, and Rozelle (2002): Methodology First step: Hazard analysis to estimate plot tenure durations, and predict an expropriation hazard rate for each plot × household, based on: Duration dependence, Household characteristics, (Age of hh head, size, share of adult males, and of children)

Plot characteristics, (Contractual status, area, quality, irrigation, topography)

Village dummies. (Which explain 95% of observed variation)

Second step: Regress fertiliser use per area (organic vs chemical) on: Predicted expropriation hazard rate; Village characteristics, (Organic matter in soil, price of chemical fertiliser)

Plot characteristics, (Contractual status, area, quality, irrigation, topography, distance from home) 41 / 46

The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

Jacoby, Li, and Rozelle (2002): Results (excerpt)

A higher expropriation risk: Decreases the use of organic fertiliser, which has long term effects; Increases the use of chemical fertilisers, which have short term effects.

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Insecurity and labour If land rights are not well established and protected, agents have incentives to spend resources defending them (Besley and Ghatak, 2010). ⇒ Waste of time and labour resources, diverted from more productive uses. Example: Field (2007) on a project of land titling in Peruvian urban slums starting in 1996. In a context where 47% of untitled households report keeping someone at home for property protection. Data: Survey of 2750 urban households in March 2000: Randomly selected after stratification by targeted cities; Information on labour and land property status (“squatter” or not).

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Field (2007): Methodology and results Methodology: Difference-in-difference strategy, using: The gradual and seemingly random progress of the land titling program teams; The difference between “squatters” and households with a formal title before the program. Additional controls: Household characteristics; Neighborhood-level characteristics; City fixed-effects (and their interaction with program and squatter status). ⇒ Results (excerpt): The land titling program increases the weekly labor supply of a household by one day. 44 / 46

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Outline 1

The importance of land rights

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Land rights (in)security

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Conclusion

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The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

Concluding remarks Very important empirical literature on the consequences of land rights in developing countries, based on very diverse: Dimensions of land rights, Theoretical mechanisms, Econometric strategies. As for policy implications, the main result is that the effect of a given land right is highly dependent on the context: Institutional, Agricultural, Economic. ⇒ Gradual shift from a general recommendation of privatisation to a context-based approach. 46 / 46

The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

André, C., and J.-P. Platteau (1998): “Land relations under unbearable stress: Rwanda caught in the Malthusian trap,” Journal of Economic Behavior & Organization, 34(1), 1 – 47. Banerjee, A., and E. Duflo (2006): “The Economic Lives of the Poor,” CEPR Discussion Papers 5968, C.E.P.R. Discussion Papers. Besley, T., and M. Ghatak (2010): “Property Rights and Economic Development,” in Handbook of Development Economics, Vol. 5, ed. by D. Rodrik, and M. Rosenzweig, vol. 5, chap. 68, pp. 4525–4595. Elsevier. Brasselle, A.-S., F. Gaspart, and J.-P. Platteau (2002): “Land tenure security and investment incentives: puzzling evidence from Burkina Faso,” Journal of Development Economics, 67(2), 373 – 418. de Soto, H. (2000): The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. Basic Books. Deininger, K., and S. Jin (2005): “The potential of land rental markets in the process of economic development: Evidence from China,” Journal of Development Economics, 78(1), 241 – 270. FAO (2015): FAO Statistical Pocketbook. Field, E. (2007): “Entitled to Work: Urban Property Rights and Labor 46 / 46

The importance of land rights Usus Fructus Abusus Land rights (in)security Conclusion References

Supply in Peru,” The Quarterly Journal of Economics, 122(4), 1561–1602. Hardin, G. (1968): “The Tragedy of the Commons,” Science, 142, 1243–47. Jacoby, H. G., G. Li, and S. Rozelle (2002): “Hazards of Expropriation: Tenure Insecurity and Investment in Rural China,” American Economic Review, 92(5), 1420–1447. Laffont, J.-J., and M. S. Matoussi (1995): “Moral Hazard, Financial Constraints and Sharecropping in El Oulja,” The Review of Economic Studies, 62(3), 381–399. Lin, J. Y. (1992): “Rural Reforms and Agricultural Growth in China,” American Economic Review, 82(1), 34–51. Liu, J., Z. Zhang, X. Xu, W. Kuang, W. Zhou, S. Zhang, R. Li, C. Yan, D. Yu, S. Wu, and N. Jiang (2010): “Spatial patterns and driving forces of land use change in China during the early 21st century,” Journal of Geographical Sciences, 20, 483–494. López, R. (1997): “Environmental externalities in traditional agriculture and the impact of trade liberalization: the case of Ghana,” Journal of Development Economics, 53(1), 17 – 39. Maddison, A. (2001): L’Economie mondiale: Une perspective millénaire. 46 / 46

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CED, OCDE.

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