Essays on Land Markets and Development

Abstract

This dissertation consists of three chapters. In chapter 1, I provide a cross-country perspective on the prevalence of market restrictions and review the literature that investigates the misallocation costs of these policies. In chapter 2, I summarize the microdata that I use in the analysis of customary land in Malawi. In this chapter, I also estimate the main objects that are used as inputs into an indirect inference exercise in chapter 3. In chapter 3, I investigate whether replacing use it or lose it land institutions with land markets triggers productivity growth and reallocation of labor towards non-agriculture. I build a model where households face risk in non-agriculture and maintain rights to agricultural land via the principle of use it or lose it. When markets are incomplete but land is easily accessible, households can partially self-insure by returning to agriculture when non-agricultural opportunities fail. As land becomes less accessible, productive farmers disproportionately forgo profitable opportunities in non-agriculture to limit their exposure to uninsurable risk. I use moments from the Malawi microdata to estimate key model parameters via indirect inference. With only 1.3% of landless households accessing land each year in Malawi, the prospect of long landless spells pushes productive farmers to stay in agriculture. I use the model in a policy experiment where land is privatized and landholders at the time of the reform earn income on the land. While the policy yields an increase in aggregate output of 28%, patterns of entry and exit attenuate the productivity gains in agriculture by 16%. Productivity grows by 22% in agriculture and 15% in non-agriculture. Although all households benefit from higher productivity in agriculture, the welfare gains for landless households are on average 10 times lower than those of landowners.