Tenure Insecurity and Investment in Ethiopia Garrett Nauschutz

Authors Daniel Ayalew Ali Economics Research-World Bank Group Featured on Economic Growth and Change of African Countries reading list Stefan Dercon Development Economist-Oxford University Focus on Ethiopia as part of the International Growth Centre Madhur Gautam Economics Research-World Bank Group

First things, first What’s the point? Secure property rights linked to growth (Coase 1960) Africa lagging in growth  risk to assets (Collier and Gunning 1998) Importance of land to Ethiopia Seeking a link between transfer rights and perceptions of the threat of expropriation

First things, first Adds to Besley (1995): Uses panel data from Ethiopian Rural Household Survey ( ) 1 Adds perception of threat of expropriation Impact on long term/future investment Terms: Transfer rights: ability to sell, exchange, mortgage, bequeath Tenure security: protection against expropriation (by state, neighbors, etc.), particularly against land reform Plot: identifiable piece of land, as demarcated by the farmer 1-Enables researches to identify any effects on investment from changes over time

Land Rights in Ethiopia 1975: Nationalized ownership Prohibited private ownership and transfer by sale, lease, or mortgage Land redistributions 1991: temporary suspension of land redistributions 1995: very similar, but leasing permitted

Effect of Secure Land Rights Guarantees farmers the fruits of their labor/protection against government Enhances ability to obtain financing (collateral) Enables allocation of land resources to most productive farmers  immobile investments

Methodology Track investment in three perennial crops: Coffee: long term investment (partial yield at 3-4 years, full yield at 8 years) Eucalyptus: medium term (yield within a few years) Q’at: mobile medium term (yield at 2-3 years) Measured against: characteristics of land plots acquisition method number of years owned perceived right to transfer

Results About 60% of households perceived plots could be transferred This perception declined from 1997 to 1999 across all modes of acquisition 21% of households lost land during land reform 5% fear losing land due to reallocation within 5 years

Results VariableEffect 2 Coffee31.5% Q’at60.6% Eucalyptus50.3% All trees and Shrubs29.7% 2- The effect is the incremental percentage of land in a plot would be allocated to the variable if the plot had complete, secure transfer rights relative to a plot with no perceived transfer rights.

Conclusions Perceived limits in transfer rights and tenure insecurity negatively affect long term investment in Ethiopian agriculture Contributes to low returns from land and ongoing low GDP growth and poverty Efficiency losses Land allocated to less productive crops and farmers

Implications Increase to 100% of plots with full transfer rights could add 10% more land cultivated with coffee Even higher for the medium term Q’at and Eucalyptus investments Secure property rights will improve long-term orientation of farmers Crop selection Land improvements (i.e. soil conservation)

Mixed Results 3 Similar studies in other parts of Africa have found different results: Land titling/registration [Carter et al.(1994), Deininger et al. (2007)] Tree planting v. terracing [Deininger and Jin (2006)] Deininger and Binswanger (1999) Land titling not always best policy option Property rights need not confer full ownership, just need to be secure to promote sustainable development 3- Place, Frank. "The Limits of State-Led Land Reform." World Development 37, no. 8 (August 2009):

My Thoughts Policy needs to be tailored to the people and their needs Privatization and market exchanges for land Alternative allocating institution: the group ranch system