Property Rights in a Very Poor Country

Tenure Insecurity and Investment in Ethiopia

Garrett Nauschutz

AuthorsDaniel Ayalew Ali

Economics Research-World Bank GroupFeatured on Economic Growth and Change of

African Countries reading listStefan Dercon

Development Economist-Oxford UniversityFocus on Ethiopia as part of the International

Growth Centre Madhur Gautam

Economics Research-World Bank Group

First things, firstWhat’s the point?

Secure property rights linked to growth (Coase 1960)

Africa lagging in growth risk to assets (Collier and Gunning 1998)

Importance of land to Ethiopia

Seeking a link between transfer rights and perceptions of the threat of expropriation

First things, firstAdds to Besley (1995):

Uses panel data from Ethiopian Rural Household Survey (1994-1999)1

Adds perception of threat of expropriationImpact on long term/future investment

Terms:Transfer rights: ability to sell, exchange, mortgage,

bequeath Tenure security: protection against expropriation (by

state, neighbors, etc.), particularly against land reformPlot: identifiable piece of land, as demarcated by the

farmer1-Enables researches to identify any effects on investment from changes over time

Land Rights in Ethiopia1975: Nationalized ownership

Prohibited private ownership and transfer by sale, lease, or mortgage

Land redistributions

1991: temporary suspension of land redistributions

1995: very similar, but leasing permitted

Effect of Secure Land RightsGuarantees farmers the fruits of their

labor/protection against government

Enhances ability to obtain financing (collateral)

Enables allocation of land resources to most productive farmers immobile investments

MethodologyTrack investment in three perennial crops:

Coffee: long term investment (partial yield at 3-4 years, full yield at 8 years)

Eucalyptus: medium term (yield within a few years)

Q’at: mobile medium term (yield at 2-3 years)

Measured against: characteristics of land plots acquisition methodnumber of years ownedperceived right to transfer

ResultsAbout 60% of households perceived plots

could be transferred

This perception declined from 1997 to 1999 across all modes of acquisition

21% of households lost land during land reform

5% fear losing land due to reallocation within 5 years

ResultsVariable Effect2

Coffee 31.5%

Q’at 60.6%

Eucalyptus 50.3%

All trees and Shrubs 29.7%

2- The effect is the incremental percentage of land in a plot would be allocated to the variable if the plot had complete, secure transfer rights relative to a plot with no perceived transfer rights.

ConclusionsPerceived limits in transfer rights and tenure

insecurity negatively affect long term investment in Ethiopian agricultureContributes to low returns from land and

ongoing low GDP growth and poverty

Efficiency losses Land allocated to less productive crops and

farmers

ImplicationsIncrease to 100% of plots with full transfer

rights could add 10% more land cultivated with coffee Even higher for the medium term Q’at and

Eucalyptus investments

Secure property rights will improve long-term orientation of farmersCrop selectionLand improvements (i.e. soil conservation)

Mixed Results3

Similar studies in other parts of Africa have found different results:Land titling/registration [Carter et al.(1994),

Deininger et al. (2007)]Tree planting v. terracing [Deininger and Jin

(2006)]

Deininger and Binswanger (1999)Land titling not always best policy optionProperty rights need not confer full ownership,

just need to be secure to promote sustainable development

3- Place, Frank. "The Limits of State-Led Land Reform." World Development 37, no. 8 (August 2009): 1326-1336.

My ThoughtsPolicy needs to be tailored to the people and

their needs

Privatization and market exchanges for land

Alternative allocating institution: the group ranch system