TRADING THE UNTRADEABLE A Gravity Model for Large-Scale Land Acquisitions (LSLAs) Marcello De Maria PhD Student, Department of Economics University of Bari (Italy)

INTRODUCTION Starting from the 2008 commoditis bubble, new features characterizing the demand for land at a global level emerged: 1.High incidence of LSLAs 2.Renewed interest by international investors 3.Increasing number of competing land uses Is there an international market for LSLAs? What forces are driving this market? Are there any relevant similarities and/or differences with other international markets?

WHAT DO WE KNOW ABOUT LSLAs? A huge amount of farmland has been demanded in the last few years, even if estimates on the total amount vary across different sources (See Appendix I) The purpose of the investment varies, mainly concerning export-oriented agriculture and oil crops Both public and private actors are involved An economic geography of the phenomenon can be traced: land- scarce and capital abundant countries are seeking land in low-income and land-abundant countries Lack of transparency in contracts Controversial debate over the consequences of LSLAs

WHAT DO WE KNOW ABOUT THE LSLAS LITERATURE? |1 A fast-growing literature… … but still confined into an academic niche, with a high level of concentration

WHAT DO WE KNOW ABOUT THE LSLAS LITERATURE? |2 A mainly qualitative literature… … analysing a multifaceted range of aspects

METHODOLOGY: A Gravity Model for LSLAs Given the long tradition of empirical success in explaining bilateral flows in international markets (Trade, FDI…) a gravity model has been chosen in this research The gravity approach has been already applied succesfully in the context of LSLAs (Arezki et al., 2013; Giovannetti & Ticci, 2013) The novelty here is to consider explicitly the size of the deal as a dependent variable: in other words, what makes LSLAs larger? Indeed, even if all deals considered are large, a 1,000 Ha concession is very different from a 1,000,000 Ha one The International market perspective for LSLAs is new as well

ESTIMATION: The Basic Gravity for LSLAs The basic LSLAs gravity estimation equation includes variables traditionally significant in the gravity FDI and trade literature (Santos Silva & Tenreyro, 2006; ): Where S ij is the size in Ha of the LSLAs from country i (investor) to country j (target); Y i and Y j are the current GDP in thousand of US$ for the investor and the target country; YP i and YP j represent per-capita GDP; D iJ is the distance between country i and country j; CTG ij, CL ij and COL ij, are bilateral dummy variables assuming value 1 in presence of contiguity, common language and colonial ties; LL i and LL j, are dummies indicating respectively if the investor or the target country is landlocked; REM i and REM j represents remoteness from the world market for country i and j.

Once the basic gravity model for LSLAs is validated and analogies and differences between other international markets are highlighted, the model is extended in order to include specific LSLAs drivers emerging from the literature: Agricultural Drivers: Arable Land, Irrigated Land, Average Cereal Yield, Population Growth Rate Institutional Drivers: Rule of Law, Land Tenure Security, Corruption ESTIMATION: The Extended Gravity for LSLAs

DATA DESCRIPTION Cross section of 194 countries over the period In total observations, but only 532 non-zero values for the dependent variable (Size of the deal) Total Size: 57.9 Mio Ha Av. Size of concessions between any pair of countries: Ha Assuption: in deals with multiple investors, each investor is assumed to participate with the same share of land aquired Data sources: Land Matrix, WDI, WGI, IPD,Transparency international, CEPII

RESULTS Basic Gravity For LSLAs

EXTENDED MODEL Agricultural Drivers

EXTENDED MODEL Institutional drivers

EXTENDED MODEL The role of corruption

CONCLUSION |1 Results from the basic model suggests that we have an international market for LSLAs However, the international market for LSALs is driven by forces that are often different from traditional drivers in international trade and FDI markets Both institutional and agricultural drivers are significant and generally can be interpreted in line with the existing literature on LSLAs The gravity approach seems to detect both similiarities with respect to other international markets and peculiarities of the LSALs phenomenon, especially when the PPML specification is used

CONCLUSION |2 The evidence suggests we have an international market for land, but peculiar with respect to other international markets We have a market without prices. Incomplete price transmission mechanism Lack of transparency and low quality of institutional environment High risk of information asymmetries High risk of market failure: in particular risk of misallocation of land – an increasingly scarce resource – on the global scale, which calls for immediate policy intervention

APPENDIX I Comparing Different Inventories for LSLAs

APPENDIX II Comparing the Traditional Gravity Model for FDI and the Basic LSLAs Gravity Model

APPENDIX III A Methodological Issue: Dealing with Indicators Variables in the Gravity Model for LSLAs – an Example Using “Control of Corruption”