Welfare outcomes of the liberalization of the agricultural land rental market in Egypt

• In Event: Agricultural Policy, Climate Adaptation and Welfare: International Perspectives

Abstract

While land reform policies generally have important distributional effects, they also often distort land allocation (Adamopoulos et al., 2022; Restuccia & Rogerson, 2017). This hurts productivity through 1) the land misallocation channel: restricting the transfer of land across producers, 2) the selection channel: restricting occupational choice and workers’ mobility across sectors. A transition to a free market that abolishes land reform laws could induce land reallocation that leads to gains in productivity. It may however undo the capital redistribution intended by the land reform, inevitably creating winners and losers.

I study the effect of a law that abolished restrictive land tenancy institutions and accelerated the transition to a free land rental market in Egypt on land productivity, welfare of households working in agriculture and income distribution. I conduct a difference-in-differences estimation between districts with higher exposure to the land rental laws and those with lower exposure before and after the passage of the 1992 land liberalization law. I proxy the exposure to the law by the share of rented land in each district before the passage of the law using digitized data from Egypt’s Agricultural Census 1990 published by the Ministry of Agriculture.

The transition to land markets in cases of misallocation due to restrictive land institutions such as customary and untitled land systems was estimated to result in large gains of productivity that could reach 2.8 fold the status quo (Adamopoulos et al., 2022; Chen, 2017; Chen et al., 2023; Gottlieb & Grobovšek, 2019). This gain in productivity is both due to the elimination of land misallocation and the elimination of distortions to occupational choice. Moreover, land reform in the Philippines that capped landholdings and restricted land transferability was estimated to reduce land productivity by 17 percent (Adamopoulos & Restuccia, 2020). A few papers have used quasi-experimental methods to examine the impact of the reinforcement of land rights on productivity and land market activity (Beg, 2022; Chari et al., 2021; Chen et al., 2022). They found a significant increase in productivity albeit moderate compared to the previous literature. They also found it to increase land rental activity (Beg, 2022; Chari et al., 2021). Chen et al. (2023) estimated that the transition to a free market would significantly reduce income inequality and poverty. The literature has otherwise fallen short of examining the effects of the transition to a free rental market on households’ welfare and income distribution.

The case of Egypt is of interest because it offers a natural experiment where restrictive land rental laws were swiftly removed, and a free land rental market was reinstated allowing for an investigation of the realized effect of the rental market on productivity and income distribution. Preliminary results show that the annual expenditure of agricultural workers has on average significantly increased in districts more affected by the law compared to those less affected.

Author

• Sarah Wahby, University of Minnesota - Twin Cities
  Presenting Author