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Working paper 660

Diego Restuccia, Chaoran Chen, Raul Santaeulalia-Llopis, "The Effects of Land Markets on Resource Allocation and Agricultural Productivity", 2020-03-18
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Abstract: We assess the effects of land markets on misallocation and productivity by exploiting effective
variation in land rentals across time and space arising from a large-scale land certifcation
reform in Ethiopia, where land remains owned by the state. Our main fnding from detailed
micro panel data is that land rentals substantially reduce misallocation and increase agricultural
productivity. Our evidence builds from an empirical difference-in-difference strategy
and a calibrated quantitative macroeconomic framework with heterogeneous household-farms
that replicates|without targeting|the empirical effects, an outcome that externally validates
our model. The empirical effects are nonlinear|impacting more farms farther away
from effcient operational scale, consistent with our theory. Further, counterfactual model
experiments suggest that the land reform reduces income inequality, is relatively scalable
and explains a sizeable proportion of the full extent of misallocation. Additional insights on
the role of (in)formality in land markets and its effects on technology adoption are provided

Keywords: Land markets, rentals, effects, misallocation, productivity, inequality, micro data, quantitative macro, informal markets, technology, fertilizers

JEL Classification: E02, O10, O11, O13, O43, O55, Q15, Q18, Q24