Category Archives: Land Reform

LAND REFORM, POVERTY REDUCTION AND GROWTH

LAND REFORM, POVERTY REDUCTION AND GROWTH: EVIDENCE FROM INDIA

T. Besley & R. Burgess

The Quarterly Journal of Economics, Vol. 115, No. 2 (2000) pp. 389-430

A Short Summary 

In a Nutshell

Investment in the asset base of the poor has been seen as a central way to fight poverty. In the case of poor agrarian economies this typically means improving the terms upon which the poor have access to land e.g. improving tenurial security, removing intermediaries etc. Using panel data for Indian states (which had control over reforms) they find that there is a robust link between land reform and poverty reduction, although the effects are strongest when the reforms are concerned with improving the terms of contract rather than actual redistribution. The reforms increased agricultural wages consistent with the reduction poverty, and there is some evidence that overall the reduction in poverty came at the expense of lower income per capita.

They classify the reforms into four categories:

  1. Tenancy reforms – i.e. how much rent can be charged etc.
  2. Reforms to abolish intermediaries – these intermediaries were feudal remnants and were allowed to collect a larger share of the surplus than the landlords themselves.
  3. Reforms that put ceilings on landholding such that land could be redistributed to peasants.
  4. Reforms that allowed for consolidation of disparate landholdings.

A measure of poverty is then regressed on time and state fixed effects, the cumulative aggregate (but also disaggregated) land reform variables, lagged as they take time to implement.

The results indicate that (1) and (2) significantly reduce poverty, but that (3) and (4) have little effects. Whilst this may be explainable theoretically, it could also be being driven by the fact that there was no serious attempt to implement (3) and (4). The split up the results by urban and rural sector and find the effects only hold for rural populations which is consistent with the idea it was the reforms and not some wider economic fluctuations that lead to decreased rural poverty. They add various other variables that could be explaining the reduction poverty (e.g. health spending, state taxes for redistribution) and find the results are robust, although the coefficient on state taxes is also significant.

Reforms could be endogenous to poverty: if reform is targeted at poverty reduction then it will be focused on areas where poverty is highest and hence we are underestimating the effect. If it is targeted at areas that will respond the best then we are overestimating. Thus the instrument using lagged political identity of governments as instrument for the reforms. Whilst the F-test is very low (weak instruments) the results are broadly similar which adds weight to the main specification.

With agricultural wage on the left hand side they confirm that the reforms did indeed increase wages. However, with income per capita on the left they find weakly negative effects from the reforms. This hints at an equity-efficiency trade off. The reforms that have an effect on poverty (those that alter production relations rather than distribution of land) decrease poverty, but may also decrease state wide incomes

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EMPOWERMENT AND EFFICIENCY

EMPOWERMENT AND EFFICIENCY: TENANCY REFORM IN WEST BENGAL

A. Banerjee, P.J. Gertler & M. Ghatak

Journal of Political Economy, Vol. 110, No. 2 (2002) pp. 239-80

Principal Research Question and Key Result Did operation Barga in West Bengal, which aimed to strengthen laws relating to regulating rents and improving security of tenure for sharecroppers, have an effect on agricultural productivity.
Theory The impact on productivity from the strengthening of land rights can come from two sources:

  1. Bargaining power – As the tenant has increased bargaining power the landlord is forced to offer him a greater share of the crop, and this increases the tenant’s incentives and hence he will produce more
  2. Security of tenure – this has two conflicting effects. When output is low the landlord could threaten eviction. However, now that eviction is not permitted, this option is not available and this could in theory reduce the incentives on the tenant to be efficient. On the other hand it encourages the tenant to invest in the land as he knows he will be in situ and therefore able to enjoy the fruits of said investment.

We expect the net effect to be positive however. This is because incentives were improved, and initial research indicated that threats of eviction were rarely used to punish small outputs. Rather landowners would just cultivate the land themselves or sell.

 

Motivation These reforms were not a wholesale redistribution of land; rather they strengthened existing rights in order to make relations for tenants vis-à-vis landlords more equitable, and to strengthen tenure. Whereas the reform laws in China were probably only feasible due to the authoritarian nature of the government, these types of reform could more easily be pursued by other developing nations.

 

Data The reforms enforced long dormant laws. By registering with the government share croppers could enforce their inheritable incumbency rights to the land, and landlords could only demand 25% of the output. They could not be evicted if they paid this 25%. Operation Barga sought to increase the number of registered share croppers which it did by many millions. At the time West Bengal was the state with the highest proportion of registered share croppers, it is land scarce and highly agriculture dependent. In general sharecroppers were forced to pay on average 50% of the output prior to reform.

 

Strategy Difference in Difference comparing with Bangladesh. They are similar in terms of observables, and Barga happened because of what was going on in India, not specifically because of West Bengal. Thus the parallel trends assumption is likely to hold. Rice yields were approximately the same for both states until Barga at which point West Bengal increased its output (except for the two drought years). The outcome variable is log(rice yield per hectare) in district d in time t. There are district and time fixed effects, a treatment and post dummy, and their interaction. The coefficient on the interaction (as ever) is the DID estimator.

A second strategy is to use the intensity of sharecroppers that registered within West Bengal and to compare outcomes to see if productivity rises faster in areas where registration as more intense. As the opportunity to register was not distributed to everyone at the same time, they use lagged variables of the proportion of tenants that were eligible in a time period. They recognize that the spread of the opportunity was probably related to demand, and also to supply which could be correlated with various other factors that affected outcomes.  Ideally they want an instrument but do not find one.

 

Results In 1979-83 West Bengal grew slower due to drought. In 1984-88 and 1988-93 rice yields were 5% higher in West Bengal. This is from a simple DID.

In the full specification with additional controls for irrigation and rainfall (to control for the Green Revolution), and the amount of rice under cultivation, results are similar. However, it is only with the full set of controls that that the 84-88 and 88-93 coefficients are significant. With only half the controls only the 88-94 coefficient is significant, and with no controls it is the same. That the results increase in magnitude when the green revolution is controlled for indicates that Bangladesh was more proactive in adopting the e principles of the Green Revolution. Barga explains around 28% of subsequent growth.

The results of the second model are that registration rate was positively associated with yields. All coefficients are positive and highly significant including all the controls indicated below. This adds credibility to the DID results.

 

Robustness Using data for 1969-78 they regress changes in yields over the period on a West Bengal dummy (including the Bangladesh data), and they cannot reject the hypothesis that the coefficient on the dummy is zero, indicating that yield growth was substantially the same for both states.

In the second specification the omission of other programmes could be important:

  1. Expansion of infrastructure – controlled for using roads and irrigation
  2. New seed varieties  – controlled for using area of such under cultivation
  3. Left front leads to better implementation – dummy for left front
  4. Closer to Calcutta means better implementation – southern dummy to control
  5. Registration targeted to high density sharecropping areas – controlled using density of sharecroppers interacted with time dummies.
Problems
  • There could be some sample selection bias. Faced with the new laws some landowners preferred to sell up. This lowered the price of land and allowed the sharecroppers to purchase. This means that some of the pre-reform sharecroppers were taken out of the sample as they now farmed in their own right. If these tenants had previously been low efficiency (hence why the landlord preferred to sell) then this would bias the results upwards.
  • Significance in the full DID model is not hugely strong, and seems to be driven by the inclusion of control variables. Not necessarily an issue, but it is curious.

 

Implications Tenancy law strengthening can lead to improved crop shares and security of tenure which can in turn affect agricultural productivity. As noted above, as this was a limited transfer of rights rather than full on redistribution and so it could be implementable in other countries. However, what is also clear is that these laws were already in existence and Barga only sought to implement them effectively. Thus, any land reform needs to take into account that it will only be successful if it does not create incentives for landlords to cheat, and if the domestic institutions are willing to enforce the reforms.

 

 

RURAL REFORMS AND AGRICULTURAL GROWTH IN CHINA

RURAL REFORMS AND AGRICULTURAL GROWTH IN CHINA

 J. Y. Lin

American Economic Review, Vol. 82, No. 1 (1992) pp. 34-51

Principal Research Question and Key Result Which of the package of reforms that were enacted in 1970s China caused agricultural output to rise so precipitously? Was it the de-collectivization (improved individual access to land), higher prices, more flexible quotas, or a change in inputs? What factors were responsible for the subsequent slowdown?  The paper finds that the dominant factor was the conversion to the Household Responsibility System, away from collectivization.

 

Theory Much of the developing world is dependent upon agriculture, yet there are large inequalities in land ownership. Land reforms such as the ones discussed here can improve both efficiency and equity. Having land title allows those who work the land to command a greater share in the output, and this may improve incentives to invest in new technologies, new seed varieties etc. such that output is increased. This may then have a subsequent effect on agricultural wages. Additionally, land title relaxes the credit constraints faced by the poor, such that when an individual at the bottom of the income distribution is deciding whether to be an entrepreneur or a wage earner, he may be more able to start a business if he has land as collateral. This can improve the allocative efficiency of capital, which in turn will increase aggregate output.

 

Motivation In 1978 after a period of sluggish agricultural growth, a package of reforms were enacted that included raising the prices of major crops (by up to 50%), a change to the HRS (which initially began in secret without permission, but then the government allowed it to be rolled out, but to the poorest regions first), the increased ability of farmers to sell into the market (after they had produced their quota), as well as a change in availability of inputs such as fertilizer. Quotas were also reduced, and interregional trade restrictions were relaxed. There was subsequently a period of rapid growth in the sector (1978-84), although after 1985 much of this growth came to a sudden halt.

If the HRS was the major source of growth then future reform should be aimed at strengthening the position of household farms, on the other hand if the other reforms were more salient, then it is possible that decollectivization actually harmed agriculture. It is important to know which mechanism was most important for designing future policy and for gleaning lessons pertinent to other developing nations.

 

Data Province level panel from 1970 to 1987 for 28 of 29 provinces. Agricultural output is for 7 grain crops and 12 cash crops. There is data on inputs such as land (cultivated land), labour (number of workers in cropping sector), fertilizer (gross weight of fertilizer consumed) and capital (tractors, bulls etc. measured in horsepower). There are also measures of the % of HRS, index of prices, and market prices relative to manufacturing prices, % sown acreage, multiple cropping index.

 

Strategy One way (province) and two way (province and time) fixed effects model. In the model with time fixed effects the price variables have to be omitted as they are national, and hence region invariant. The time dummies already capture the impacts of year to year price changes on productivity. He estimates using OLS and Estimated Generalized Least Squares. Variables are normalized by number of team/farms as the provinces vary greatly in size.

 

Results HRS had a positive and significant effect on agricultural growth, as did the growth in state and market prices.

The total output growth between 1978-84 was 42%, and 45% of this came from growth in inputs. Fertilizer growth alone accounted for 1/3 of total output growth. Increases in labour and capital had only minor effects on output. HRS contributed 48% of output growth through increased productivity.  The switch from grain to cash crops also appears significant. This leaves around 5% of growth unexplained. The results for HRS are similar when the input variables are excluded which indicates that HRS operated through efficiency gains rather than increased use of inputs.

The drop off in growth was most likely due to the end of the period of expanding HRS, as that reform was complete in 1983, therefore even without any other cause growth would have fallen by around 50%. Additionally, there was a slowdown in growth of fertilizer use, and also labour was drained by the manufacturing sector.

 

Robustness There are no real robustness checks as such.

 

Problems
  • It is not totally clear what it was about the HRS reforms that increased output although results indicate that it was through efficiency gains. However, would these gains have occurred had they not been able to then sell on the open market for a better profit than was offered by the state quota? In other words, it could have beent he whole package of reforms that allowed fro gains from HRS to occur. If HRS was pursued in isolation the results may not have been the same.
  • There are no real robustness checks in the paper. For example a placebo test could have been done using a different time period to check that the results are not driven by spurious correlations.
  • This paper measures only the short term effects of the HRS system. If it improves investment incentives, there should be effects that linger way beyond the time period of study.
  • Limited external validity as the Chinese government is so centrally strong. Such reforms problably would not be possible in another setting.

 

Implications Whilst small holding are often thought to be a barrier to efficiency in the developing world, this paper suggest that strengthening the land rights of small holders can leads to large gains in output as they make more efficient use of available inputs, and may be more inclined to invest in their farms.