Securing Property Rights: Evidence from China’s Rural Land Contracting Law and India’s Land Reform

1. Securing Property Rights: Evidence from China’s Rural Land Contracting Law and India’s Land Reform Klaus Deininger and Songqing Jin

2. Motivation for Security Land Rights • Importance for development • Determine investment incentives & efficiency of resource use • Factor market development • Credit access and insurance substitute • Reduce conflicts • Lack of such institutions often hurts the poor disproportionately • Empirical support: Importance of property rights • Similar jurisdictions w diff’t institutions: Colonization policies across countries & different land policies within India. • Firm level data from Eastern Europe & China • Household level analysis finds a significant link between property rights and investment. • But, little evidence on institutional change • Adoption of good institutions far from automatic • Powerful interests can forestall beneficial change

3. Legal context in China • From collectivization to Household responsibility • Collectivization in 1950s and 60s, disastrous consequences • Re-establishment of individual farming 1978 with big impact • But tenure remained highly insecure • Post-1978 measures to increase tenure security • Extension of 15-year to 30-year contracts in 1998 • Issuance of written certificates • Limited impact on tenure security • Key problem: Unchecked power of local officials • Ability to reallocate land source of corruption • “Over-conversion” of land to provide resources for local government • Source of conflicts and riots • Exacerbated by conflict of interest (leaders also resolve dispute) • Key provisions of the RLCL (March 2003) • Puts transferable 30-year land contracts on legal basis • Prohibits “large” reallocation, clear conditions for “small” one (Art. 27) • Clarifies that the collective can not take land from individual users without providing compensation determined by agricultural production (Art. 16) • Makes it possible to redress for violations through the courts rather than only through administrative means.

4. Objectives of China’s RLCL study • Two indicators used for the analysis: • Whether or not a reallocation in contravention of the law (“illegal reallocation”) did occur and • The amount of compensation received by households whose land was subject to expropriation, e.g., for infrastructure or private commercial use.

5. Hypotheses on impact of RLCL • Will strengthen property rights in two dimensions • General security against internal redistribution • Amount of compensation in case of land taking/expropriation • More effective if leaders are elected • Re-election increases leaders’ accountability (repeated game) • Puts limits on amount of rent to be extracted • Will help with implementation of legal reform • Knowledge of law important for effects to materialize • Ability to assert rights also depends on knowledge • Dissemination efforts by higher level governments

6. Data sources • Two rounds of survey: NBS sample villages • First round 2003: 1,200 villages & 12 questions for households • Follow-up in 800 villages in 2005 • Household survey • Quiz (8 questions) on knowledge of law: Leader & 10 farmers • Up to 4 households affected by land takings/expropriation • Amount of compensation paid (& other party) in case of taking • Key variables (2 periods) • “Illegal” land reallocation; Compensation paid in case of taking • Village institutional conditions & income; reallocations from 1999 • Households’ knowledge of law, availability of certificate • Characteristics of land & process in case of expropriation

7. Estimation strategy (China) • Illegal reallocation at village level (j) • Rjt or Ajt = α + βDt + γGj + δ(DtGj) + ρKj + θTj + ηEj +ξPj+εj • Rjt= 1 if illegal reallocation occurred during period t, =0 otherwise • Ajt = area affected by illegal reallocation during period t • D = reform dummy; G = elections; K = Knowledge; T = certificate; E= village characteristics • Compensation at plot level • Cijt = α + βDt + Ej + δ (DtGj) + …+ εj • Cijt = level of compensation for plot i that was acquired away in period t • Other variables include plot, household, village characteristics to capture quality of land, type of takings, local economic condition and other factors that potentially determine Cijt • Endogeneity of elections • Mandatory since 1998 but not implemented everywhere • Can depend on unobserved factors affecting reallocation • Issue discussed in other studies (Lin et al.; Zhang et al.) • Instruments: Previous leaders’ length of tenure (also squared & interacted with reform dummy)

8. Village characteristics

9. Admin. reallocations

10. Takings: aggregate

11. Takings: Household level

12. Det’s of “illegal” reallocation (IV)

13. Det’s of compensation levels

14. Key findings • While RLCL can not slow down the pace of land takings, it however significantly increased the amount of compensation paid to households for the loss of land • RLCL is effective in reducing illegal reallocation and raising the amount of compensation only if the officials are elected, pointing towards complimentarity between good governance and legal reform. • RLCL also helped to eliminate the discrimination against public takings • Knowledge of law is negatively related to illegal reallocation • In terms of land value, reform would be predicted to increase land values by slightly more than 30% in areas where leaders are elected.

15. Broader relevance • Long-term impacts • Investment, intensity of land use and agricultural productivity • market development, contract types, change in farm size, etc. • Impact on labor markets • Participation in local non-farm labor markets and migration • Economics crisis • Role of land in farmer’s ability in copying with crisis • Does property rights reform help or hurt the poor during the crisis?