1. Securing Property Rights: Evidence from Chinas Rural Land Contracting Law and Indias Land Reform Klaus Deininger and Songqing Jin

2. Motivation for Security Land Rights Importance for development –Determine investment incentives & efficiency of resource use –Factor market development –Credit access and insurance substitute –Reduce conflicts Lack of such institutions often hurts the poor disproportionately Empirical support: Importance of property rights –Similar jurisdictions w difft institutions: Colonization policies across countries & different land policies within India. –Firm level data from Eastern Europe & China –Household level analysis finds a significant link between property rights and investment. But, little evidence on institutional change –Adoption of good institutions far from automatic –Powerful interests can forestall beneficial change

3. Legal context in China From collectivization to Household responsibility –Collectivization in 1950s and 60s, disastrous consequences –Re-establishment of individual farming 1978 with big impact –But tenure remained highly insecure Post-1978 measures to increase tenure security –Extension of 15-year to 30-year contracts in 1998 –Issuance of written certificates –Limited impact on tenure security Key problem: Unchecked power of local officials –Ability to reallocate land source of corruption –Over-conversion of land to provide resources for local government –Source of conflicts and riots –Exacerbated by conflict of interest (leaders also resolve dispute) Key provisions of the RLCL (March 2003) –Puts transferable 30-year land contracts on legal basis –Prohibits large reallocation, clear conditions for small one (Art. 27) –Clarifies that the collective can not take land from individual users without providing compensation determined by agricultural production (Art. 16) –Makes it possible to redress for violations through the courts rather than only through administrative means.

4. Objectives of Chinas RLCL study Two indicators used for the analysis: –Whether or not a reallocation in contravention of the law (illegal reallocation) did occur and –The amount of compensation received by households whose land was subject to expropriation, e.g., for infrastructure or private commercial use.

5. Hypotheses on impact of RLCL Will strengthen property rights in two dimensions –General security against internal redistribution –Amount of compensation in case of land taking/expropriation –More effective if leaders are elected –Re-election increases leaders accountability (repeated game) –Puts limits on amount of rent to be extracted –Will help with implementation of legal reform Knowledge of law important for effects to materialize –Ability to assert rights also depends on knowledge –Dissemination efforts by higher level governments

6. Data sources Two rounds of survey: NBS sample villages –First round 2003: 1,200 villages & 12 questions for households –Follow-up in 800 villages in 2005 Household survey –Quiz (8 questions) on knowledge of law: Leader & 10 farmers –Up to 4 households affected by land takings/expropriation –Amount of compensation paid (& other party) in case of taking Key variables (2 periods) –Illegal land reallocation; Compensation paid in case of taking –Village institutional conditions & income; reallocations from 1999 –Households knowledge of law, availability of certificate –Characteristics of land & process in case of expropriation

7. Estimation strategy (China) Illegal reallocation at village level (j) –R jt or A jt = α + βD t + γG j + δ(D t G j ) + ρK j + θT j + ηE j +ξP j +ε j R jt = 1 if illegal reallocation occurred during period t, =0 otherwise A jt = area affected by illegal reallocation during period t D = reform dummy; G = elections; K = Knowledge; T = certificate; E = village characteristics Compensation at plot level –C ijt = α + βD t + E j + δ (D t G j ) + …+ ε j C ijt = level of compensation for plot i that was acquired away in period t Other variables include plot, household, village characteristics to capture quality of land, type of takings, local economic condition and other factors that potentially determine C ijt Endogeneity of elections –Mandatory since 1998 but not implemented everywhere –Can depend on unobserved factors affecting reallocation –Issue discussed in other studies (Lin et al.; Zhang et al.) –Instruments: Previous leaders length of tenure (also squared & interacted with reform dummy)

8. Village characteristics TotalN, NWCoastCenterSW Households427507327423439 Agric. (%)78.6180.2051.0286.9190.14 Income pc (Y)29892940459625251983 Land pc (Mu)1.241.890.971.170.94 Vill. inc. (10,000 Y)22.4115.6658.259.554.87 From land (%)36.5338.9737.1610.4745.59 Election (%)70.1870.1175.7264.8968.16 Certificates (%)82.8166.5086.8684.3693.04 Know big r. (leader; %) a 53.4167.9338.7339.3658.74 Know small (leader; %)17.8013.0417.3425.5318.83 Know big r. (farmer; %) a 53.3165.5240.2633.5160.78 Know small r. (farm.; %) a 19.3219.6223.6626.4912.90

9. Admin. reallocations TotalN, NWCoastCenterSW Reall. after 2000 (%) 28.6731.5040.3223.2319.41 Area affected (mu) 745.741417.57382.21655.02443.56 HHs affected 151.9221.6115.0137.3131.7 Before RLCL 13.1813.7818.9612.118.69 After RLCL 8.3110.279.896.326.36 Illegal before RLCL 6.155.7512.104.042.74 Illegal after RLCL 3.464.006.991.011.27 Reason population (%) 45.4243.4847.7850.0041.51 Reason taking (%) 24.8822.2222.6713.6437.78

10. Takings: aggregate TotalN, NWCoastCenterSW Villages (%)29.4719.1040.5619.0034.18 HHs affected88.1494.51116.8752.0565.24 Before RLCL (%)16.5910.3823.0812.3917.60 After RLCL (%)22.5213.6831.6216.8123.97 Infrastructure (%)51.3952.9435.9448.4869.37 Jobs generated (%)28.0130.7131.4326.3224.33 Project completed65.8472.5559.8481.8264.86 Project started88.5494.1279.6996.9793.69 Linked to reall. (%)27.9535.2918.7548.4829.09 Money comp. (%)82.3772.4482.0889.4785.88 Y/mu before RLCL1317760562180548818988 Y/mu after RLCL17557762728463764811640 Vill. retains some39.0131.3759.3842.4218.02

11. Takings: Household level TotalN, NWCoastCenterSW Area lost (mu)1.231.521.331.061.05 Net inc.(Y/mu)7815261148616639 Received $ (%)82.3772.4482.0889.4785.88 Received land (%)41.2551.1835.2435.0942.59 Y/mu before RLCL6642.24258.77272.12655.37669.4 Y/mu after RLCL8949.85649.8116425003.39154.0 Welfare improved22.9119.6912.0431.5831.66 … compn16.7730.7718.4219.0510.98 …. job55.6950.0063.1652.3854.88 Welfare worsened18.3624.4119.9110.5315.83 … compn60.0062.8650.9133.3375.61 …. compn & other40.0037.1449.0966.6724.39

12. Dets of illegal reallocation (IV) ProbitTobit Reform dummy (β)0.0883.410 Leaders elected (γ)-0.048-6.262 Election*Reform dummy (δ)-0.126-9.415 Leaders knowledge of law-0.019-2.735 Share of households w. certificate-0.011-1.486 Village per capita income-0.0040.364 Share of agricultural income0.0172.022 β +δβ +δ-0.038***-6.041*** Wald test of exogeneity, chi2(2)3.310.85

13. Dets of compensation levels OLSIV_Tobit Value of production (Y/mu)0.639***0.711*** Land next to nat./prov. road1.127***1.556** Share of land received-2.329***-2.562*** Village income (log)1.916***1.806*** Reform dummy (α)1.016-0.017 Public land use dummy (σ)-1.781***-1.305* Public land use*Reform dummy (δ) 1.509**0.662 Share with certificates0.810*1.179** Leaders elected (β)1.433***4.279 Election * Reform dummy (γ)0.1301.939 β+ γ1.563***1.922*** σ+δ σ+δ0.272-0.643 Wald test of exogeneity, chi2(2)1.61

14. Key findings While RLCL can not slow down the pace of land takings, it however significantly increased the amount of compensation paid to households for the loss of land RLCL is effective in reducing illegal reallocation and raising the amount of compensation only if the officials are elected, pointing towards complimentarity between good governance and legal reform. RLCL also helped to eliminate the discrimination against public takings Knowledge of law is negatively related to illegal reallocation In terms of land value, reform would be predicted to increase land values by slightly more than 30% in areas where leaders are elected.

15. Broader relevance Long-term impacts –Investment, intensity of land use and agricultural productivity –market development, contract types, change in farm size, etc. Impact on labor markets –Participation in local non-farm labor markets and migration Economics crisis –Role of land in farmers ability in copying with crisis –Does property rights reform help or hurt the poor during the crisis?