Property Rights in a Very Poor Country

1. Property Rights in a Very Poor Country Tenure Insecurity and Investment in Ethiopia Garrett Nauschutz

2. Authors • Daniel Ayalew Ali • Economics Research-World Bank Group • Featured on Economic Growth and Change of African Countries reading list • Stefan Dercon • Development Economist-Oxford University • Focus on Ethiopia as part of the International Growth Centre • MadhurGautam • Economics Research-World Bank Group

3. First things, first • What’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

4. First things, first • Adds to Besley (1995): • Uses panel data from Ethiopian Rural Household Survey (1994-1999)1 • Adds perception of threat of expropriation • Impact 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 reform • Plot: identifiable piece of land, as demarcated by the farmer 1-Enables researches to identify any effects on investment from changes over time

5. Land Rights in Ethiopia • 1975: 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

6. Effect of Secure Land Rights • Guarantees 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

7. Methodology • Track 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 method • number of years owned • perceived right to transfer

8. Results • About 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

9. Results 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.

10. Conclusions • Perceived limits in transfer rights and tenure insecurity negatively affect long term investment in Ethiopian agriculture • Contributes to low returns from land and ongoing low GDP growth and poverty • Efficiency losses • Land allocated to less productive crops and farmers

11. Implications • Increase 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 farmers • Crop selection • Land improvements (i.e. soil conservation)

12. 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 option • Property 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.

13. My Thoughts • Policy needs to be tailored to the people and their needs • Privatization and market exchanges for land • Alternative allocating institution: the group ranch system