Enhancing Growth and Easing Poverty: Land Distribution Strategies

1. Land distribution, growthand poverty reduction Gershon Feder Klaus Deininger

2. Outline • The rationale for land reform • Empirical evidence • Country examples • General lessons • Concluding remarks

3. Rationale I: Equity & Justice • Social and political issues • High inequality undermines social cohesion; generates conflict • Lower provision of public goods in unequal groups • Historical justice • Can affect overall growth • Food security and consumption smoothing • Effective insurance against malnutrition (China) • Dealing with shocks (El Salvador) • Recognized e.g. in household plots in CIS

4. Rationale II: Sustainable Development • Inequality of asset distribution: • Leads to lower economic growth • Less poverty reduction • More environmental degradation by overcrowding of poor on fragile lands • Reduces a society’s ability to respond to macroeconomic shocks • Leads to more rent-seeking and corruption • Leads to more crime

5. Rationale III: Productivity • Farm size productivity relationship • Supervision cost advantage of owner-operated units • But access to credit and other market can counteract • Supported by inefficiency of collectives; underutilization of land • Indivisible investments to get out of poverty traps • Owners invest more than tenants • Even more pronounced with credit market imperfections • Farm investments as well as education and other services • Markets by themselves may not lead to optimum • Difficulty in dealing with highly unequal initial allocation • Obstacles remain - easily subverted at the local level • Mortgage finance very rare

6. Countries with more equal land distribution grow faster Average GDP growth, 1960-90 Japan 5 Malaysia Thailand 4 3 Egypt Brazil 2 India Costa Rica Kenya Togo 1 Iraq Venezuela Senegal Peru 0 5 15 25 35 45 55 65 Initial land distribution More equal

7. India: Market & non-market access • Land tenure history & reform implementation • Award of property rights to colonial occupiers • Reforms: Intermediary abolition, land ceiling, tenancy reform • Implementation lagging; many evictions • Impact of reform • West Bengal: Effective tenancy registration; positive impact • Nation-wide: Positive impact on growth, poverty reduction • But: Effect decreases with age of legislation; can become negative • Reason: Tenancy laws undermine land access through rental • Current policy issues and directions • Recognize rights by registered tenants, making them permanent • Implement ceiling legislation (e.g. Andhra Pradesh) where possible • Divestiture of government land • Liberalization of land rental markets to provide land access

8. Bolivia • Historical background • Huge inequalities from colonial days • Reform in the 1950s had limited success • Inter-regional inequality remains a huge issue • Land regularization to increase land access • Large-scale land grabbing in the lowlands • INRA law (1996): Secure title in return for giving up illegal land • Only very limited effectiveness • A mix of mechanisms • Willing buyer willing seller, supported by Bank • More effective implementation of existing laws (reversion) • Goal: Quick redistribution & productive development • Need to carefully monitor

9. Philippines • Land reform and its context • Tenancy reform (1970s) highly successful; w. green revolution • Operation land transfer: Very mixed success • Mainly government land; corruption; way behind goals • Huge distortions for sugar continue to support large estates • Unintended side effects from land reform • Highly bureaucratic process; splitting up of plantations? • Ceiling law applied to operational holding: trap in poverty • Banks can not foreclose; no credit access & rural investment • Limited effectiveness due to overall policy context • Key issues to be resolved • How to intensify land use? • Can land tax substitute for ceiling? • Profit-sharing arrangements/buy-outs for well-run plantations?

10. Mexico • First land reform (1917-92) • Redistributed >100 mn ha to 3.5 mn farmers in 30,000 ejidos • But: continued restrictionn on land use and rental; political tutelage • Inefficient land use; disproportionately high poverty in ejidos • Legal changes of 1992 • Strengthening of ejidos’ governance structure (assembly; statutes) • Independent registry; agrarian courts; procuraduria agraria • Strengthen land rights: systematic regularization (PROCEDE) • Make land rights transferable based on procedures • Quantitative accomplishments • Regularization of 70 mn has in 6 years • Systematic inventory of conflicts: Huge amount resolved

11. Mexico: Impacts • Land access & rental markets • Better functioning after PROCEDE • Due to implementation, not legal changes alone • Highly positive distributional effect • More equal access to common property resources within ejido • Land sales & credit markets • No wave of land sales, contrary to fears • Limited impact on credit access, partly due to financial crisis • Non-monetary & monetary benefits • Equity through increased land access • Transparency (statutes), & conflict resolution • Positive impact on income growth through off-farm participation • IRR of 37% • Helped to make gains from land reform permanent

12. General lessons • Put land reform into the broader context • Macro economic policy & opportunities for small farmers • Viability of farm models; capacity building & training • Identify productive people who want land rather than just assets • Program characteristics • Land and complementary assets; grant financing, working capital • Clear & transparent rules • Unconditional individual rights for beneficiaries • Multiplicity of paths to land • Decentralized implementation • Government’s role • Disseminate, provide opportunities; integrate channels • Grant element will be essential

13. Conclusion • Land access & reform remain important issues • Basic rights approach • WDR 2006 on equity and development • Danger of growth widening pre-existing inequalities • Social peace and stability • Experience allows to distill lessons • Multiplicity of paths to access land; ability to use effectively • Programs can be successful if integrated approach is taken • Need to build on synergies • Considerable scope for learning from experience • Impact evaluation critical • Each country’s situation & experience is unique • Potential for South-South dialogue