infonet-economy

Communal land tenure is a typical feature of many developing countries. Such tenure regimes implement a “use it or lose it” principle by imposing restrictions to land transferability that are enforced via the threat of expropriation. This paper measures the distortionary impact of communal land in a dynamic general equilibrium model of occupational selection, calibrated to Ethiopia. We find that lifting restrictions on land transferability lowers agricultural employment by 19% and increases GDP by 7%. It also results in a large reduction in the ratio between non-agricultural and agricultural productivity, by 40% in real and 44% in nominal terms. Limited land transferability rationalizes a substantial fraction of the large agricultural productivity gap in poor economies. The associated loss in aggregate productivity, though, is comparatively minor.