Transportation and Land Property Rights: Economic Impacts on Agricultural Productivity

Abstract

This paper empirically investigates the relationship between the effectiveness of land property rights and the impacts of transportation on agricultural output. It is assumed that property rights are a pre-condition for the functioning of land markets. The hypothesis is that if land markets are functional then the impacts of transportation are higher because farmers can respond to improvements in transportation either by making productivity-enhancing investments or by engaging in efficient land transactions. An agricultural production function was estimated where both transportation and property rights were treated as constituents of total factor productivity, using panel data from 76 countries from 2007 to 2013. Ordinary least squares and two-stage least squares regressions revealed that, contrary to our expectations, the impacts of transportation are higher in countries with less effective property rights systems. Three possible explanations are raised. First, it is possible that better property rights are correlated with higher government intervention in agriculture, which negatively impacts productivity. Second, possibly larger benefits from improvements in property rights are to be made in the earlier stages of development. Third, it is possible that high productivity is associated with large farms because of economies of scale. Since they are more likely to be found in land-rich countries, which tend to have less effective property rights, the present paper raises concerns that land transactions triggered by transportation projects may lead to outcomes that are not Pareto-optimal, with possible consequences for social indicators such as rural poverty.