1 AGRARIAN STRUCTURE: The Role of Land Policies Gershon Feder The World Bank

2 Where Do Property Rights Come From? Evolution with population growth & trade To provide investment incentives w. higher population density To take advantage of trade and technological opportunities Imposition by outside forces To force independent smallholders into wage labor Or to extract surplus - supported by other distortions These two factors shape land relations Rapid dynamics with increasing land scarcity and land values Change in property rights regime often entailing conflict

3 Importance: Rights & Distribution Growth Insecure tenure undermines investment incentives It also hinders the functioning of markets Unequal distribution hampers long-term growth Poverty reduction Land is a key asset for the poor Gender – biased allocation of rights Social peace and good governance Conflict and civil strife Discretionary bureaucratic intervention and corruption

4 Conceptual Issues Why public provision? Markets will emerge only if rights reasonably defined Cost advantages in public infrastructure establishment Public enforcement reduces transaction costs Key elements in property rights definition Duration needs to match horizon of investments Boundaries to be identified easily and at low cost Balancing private & public interests

5 Impact of Secure Tenure Investment impact of more secure tenure Higher investment: More than double in many cases Land values: Significant increase (43-81%)

6 Impact of Secure Tenure (Continued) Transferability adds considerably to this Even in situations, e.g. Ethiopia, Nicaragua where credit is not an option And, where credit market developed, facilitates credit access Though effect may be size differentiated Equity benefits Less spending on efforts to secure property rights – welfare effect Improved local governance; less manipulation by state Communal resource conservation and management

7 Multiple Ways To Increase Tenure Security Insecure tenure is pervasive Informality in peri-urban areas, extralegality in rural ones Households undertake investment to increase security; direct demand Effect of legal situation and institutional environment Options on state lands Recognition of occupants and provision of long-term transferable leases Privatization if leases are not credible enough to facilitate investment Challenges in the distribution of public land for private use Preventing speculation while inducing efficient land use Protecting existing occupants

8 Agrarian Structure: Conceptual Issues Basic factors shaping agrarian structure Often limited economies of scale in agricultural production Labor market imperfections: inverse size- productivity Credit market imperfections: Can outweigh these advantages Impact of initial allocations

9 Farm Size Distribution

10 Farm Size Distribution & Growth

11 Land Markets Implications for rental vs. sales Rentals with low transaction cost; high flexibility Sales can provide the basis for financial market development But will be more directly affected by imperfections: Distress sales; thin markets, segmentation, link to macro factors Mortgage based land acquisition by the poor difficult Sales markets generally not overcome biases in initial distribution Interventions in sales markets may reduce security Land ownership ceilings, if high enough may reduce speculation Transferability restrictions reduce credit access; justified only temporarily

12 Land Rental Markets Possible advantages and issues Transfer to more productive producers; participation in non-farm Consumption smoothing and accumulation of experience Effort provision and contract choice: Fixed rent, wage labor, sharecrop Investment disincentive of short term contracts Many governments use this to restrict transfers in these markets Incidence and impact of rental markets Very important (including long-term contracts) in developed countries Particularly important in situations of rapid transition & growth Generally transfer land to the poor and efficient They do so more efficiently than government redistribution Policy constraints can undermine activity in rental markets If property rights are secure & TC low, they can develop rapidly

13 Land Reform and Distribution Conceptual vs. empirical picture Positive social and productivity impact in Asia and some African countries But incomplete and costly in most of Latin America Limited impact on productivity & poverty because of missing complementary investments, services Implications Land distribution as a strategy to provide access to facilitate use of assets Different approaches can complement each other Complementary investment, credit & output market access Transparent & participatory process; political support, fiscal feasibility

14 Government’s Role Government is provider of tenure security Clear legislation, efficient administration Prioritize areas for registration and regularization Effective dispute resolution system State ownership of land offers opportunities but entails risks Often ineffective use of state land Devolution of use rights or ownership can improve use Socially-oriented distribution Commercially-oriented concessions: the risks Land use zoning Justified where externalities exist Predictable & transparent rule instead of bureaucratic discretion Much more justified in urban than in rural areas