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Land policy to facilitate growth and poverty reductions - K. Deininger, G. Feder, G. Gordillo de Anda and P. Munro-Faure

FAO/20027/R. Jones

Klaus Deininger, Senior Economist, Development Research Group, World Bank
Gershon Feder, Research Manager for Rural Development, Development Research Group, World Bank
Gustavo Gordillo de Anda, Assistant Director-General and Regional Representative for Latin America and the Caribbean Region, FAO
Paul Munro-Faure, Chief, Land Tenure Service, Rural Development Division, FAO

To provide a conceptual framework for the papers in this volume, this article focuses on the broad conclusions from recent research on land issues. It argues that well-defined and secure land rights are critical to provide incentives for investment and sustainable resource management, to facilitate low-cost transfers of land and credit access as the rural non-farm economy develops, and to allow provision of public services at minimum cost. The fact that land issues are politically highly charged and controversial has often implied limited relevance in the policy dialogue, despite their importance. Based on a review of the historical evolution of property rights, the paper outlines channels through which the nature of such rights, and the way in which they can be exchanged, affect economic growth, poverty reduction and governance. For each of these areas, policy actions to improve the security of land rights, reduce the cost of exchanging them and promote socially desirable land use are outlined.


Land is a key asset for the rural and urban poor that provides an important foundation for economic and social development. Sound property rights in, and equitable access to, land can also offer the potential to help empower the rural and urban poor to adjust to the challenges posed by recent trends of globalization. This paper focuses on the main forces shaping the evolution of land rights and reviews possible sources of tenure insecurity. It identifies ways in which actions by the community or the government can help to reduce such insecurity. These approaches can provide a basis for more effective land utilization that will be critical for the promotion of growth and the reduction of poverty.

Origins and evolution of rights in land

Land tenure systems are defined by societies. Within such systems, rights in land are identified that, among others, determine access to specific uses of a certain piece of land and the distribution of the benefits that accrue from these. A number of arguments support public involvement in the recording and protection of such rights. First, the potentially high fixed costs of the institutional infrastructure needed to establish and maintain formal records of rights in land favour public provision of recording, or at least its regulation. Second, public involvement is justified because the benefits of being able to exchange rights in land are potentially of widespread benefit to society. These benefits will only be fully realized where such rights are relatively standardized and can be reasonably easily and independently verified. Finally, without public involvement in the recording and protection of such rights, holders of such rights are likely to be forced to spend resources to defend their claims to property, for example through guards and fences. This is not only socially wasteful but also disproportionately disadvantages the poor, who will be the least able to afford such expenditures.

Greater formalization of property rights has tended to evolve in response to higher potential returns from investment. These tend to reflect prospects for more intensive use of land as a result of opportunities that are often associated with population growth, greater market integration and technical advances. In the course of development by virtually all societies, the need to sustain larger populations will require investments in land that cultivators are more likely to make if land rights are secure (Boserup, 1965). Evidence suggests, in the context of increasing populations, that appropriate institutional innovations can lead to greater investment in land, economic growth and increased welfare (Hayami and Ruttan, 1985). At the same time, failure of the institutions administering land rights to respond to these demands can lead to conflict, and in extreme circumstances can undermine societies' productive and economic potential. In addition to this evolutionary perspective, the seizure of property rights to land and the introduction of imported systems for their administration by outside forces or local overlords has affected the nature of such rights in many developing countries (Binswanger, Deininger and Feder, 1995). Apart from securing the land itself, the goals of such interventions often included obtaining surpluses from local smallholder populations or to force independent smallholders into wage labour by preventing them from acquiring independent land rights. Such seizures and introductions often disrupted the evolution of land rights that might otherwise have occurred as a response to population growth and other factors and have continuing impacts on how land is allocated and managed at the local level.

Land tenure systems have therefore evolved in response to a range of societal forces; political, social and economic. It is not surprising therefore that the land tenure arrangements found in many countries are often not optimal from either an economic or a social perspective. For example, many countries in Africa face the challenges of administering multiple systems of land tenure and of bringing, where appropriate, customary tenure arrangements within more formally defined frameworks. Countries in eastern Europe and the Commonwealth of Independent States (CIS) face challenges of transition of the collective production structures that have failed to contribute to rural growth and, as a part of that, of the creation of viable systems for rights in land and their administration. In Latin America and parts of Asia, highly unequal land ownership and access to assets have made it difficult to establish patterns of growth that are truly inclusive of the poor, implying that economic growth may actually end up widening pre-existing inequalities. Despite such shortcomings, suboptimal and economically inefficient property rights arrangements often remain in place for long periods of time. In fact, far-reaching changes of land relations have generally been confined to major historical transitions.

Desirable characteristics of rights in land

Property rights in land need to have a time horizon long enough to provide investment incentives and to be defined in a way that makes them easy to identify, enforce and exchange. They need to be administered and enforced by institutions that are accessible and accountable and have both legal backing and social legitimacy. Even if property rights in land are assigned to a group, the rights and duties of individuals within this group, and the way in which these rights can be modified and will be enforced, have to be clear. Finally, as the physical and/or legal precision with which property rights are defined will generally increase in line with rising resource values, the institutions administering property rights need to be flexible enough to evolve over time in response to changing requirements.

As one of the main purposes of property rights in land is to provide the security necessary to facilitate investment, the duration for which such rights are awarded needs to be at least viable in relation to returns from possible investments or there needs to be adequate provision for compensation at expiry for the remaining value of improvements. Clearly the viable duration depends on the potential for investment, which is generally higher in urban than in rural areas. Although perpetual rights in land are generally the most attractive option, systems based on long-term rights that can be renewed automatically are an alternative. Given the long time spans involved, attention to the way in which such rights can be inherited is particularly warranted and has, for instance, often proven to be critical in enhancing women's ability to control land on their own.

Property rights in land should be defined in a way that makes them easy to identify and exchange at a cost that is low but commensurate with the value of the underlying land. With limited land values, low-cost mechanisms of identifying boundaries, such as physical markers (hedges, rivers and trees) that are recognized by the community, will generally suffice. Higher resource values may require more precise and costly means of demarcation. Similarly, where land is relatively plentiful and transactions are infrequent, low-cost mechanisms to record transactions, such as witnessing by community elders, will be appropriate. More formal mechanisms will normally be adopted once transactions become more frequent and start to go across traditional boundaries of community and kinship.

The key advantage of formal, as compared with informal, property rights is that those holding formal rights can generally call on the power of the state to enforce their rights. For this to be feasible, the institutions involved need to be appropriately structured, have adequate resources and enjoy legal backing, as well as have social legitimacy, including accountability to and accessibility by the local population. Yet in many countries, especially in Africa, the gap between legality and legitimacy has been a major source of friction, something that is illustrated by the fact that in Africa overall more than 90 percent of land remains outside the existing legal system. Failure to ensure adequate resources and/or give legal backing to land administration institutions that enjoy social legitimacy can undermine their ability to draw on anything more than informal mechanisms for enforcement. By contrast, institutions that are legal but do not enjoy social recognition may make little difference to the lives of ordinary people and have therefore often proven to be highly ineffective. Bringing legality and legitimacy together is a major challenge for land policy that cannot be solved in the abstract.

Whether it is more appropriate for property rights in land to be held by individuals or a group will depend on the nature of the resource and on existing social arrangements. Group rights will be useful in situations characterized by economies of scale in resource management or if externalities exist that can be managed at the level of the group but not the individual. The advantage of group, as compared with individual, land rights will generally decrease in the course of development. Technical progress reduces the risk of crop failure while at the same time increasing the potential pay-off from investments. Development of the nonfarm economy reduces risk by providing the possibility of access to more diverse and predictable income streams. Greater accessibility resulting from improved physical infrastructure reduces not only the risk but also the cost of publicly providing property rights. Thus one would expect to see a move toward more individualized forms of property rights with economic development. At the same time, transformation of property toward increased individualization is not automatic. On the contrary, it will be affected by political and economic factors, and thus often coincides with major conflicts, upheavals or power struggles.

Exogenous demographic changes, even in the absence of economic development, can increase the scarcity and value of land. This can challenge traditional authorities and institutions that, earlier, had unquestioned authority over land allocation and resolution of disputes. Land conflicts can generate large, negative, external effects that may undermine the state's authority and effectiveness, as illustrated by the fact that unresolved land conflicts have in some cases escalated into an important contributor to state failure. To avoid this, the institutions managing land rights will need to be able to interpret, or adapt changing traditions and social norms relating to land tenure authoritatively and in ways that protect the poor and vulnerable from abuse of their rights and provide them with improved access to land.


In many countries of the developing world, insecure land tenure prevents large parts of the population from realizing economic and non-economic benefits that are normally associated with secure property rights in land. These include greater investment incentives, transferability of land, improved credit market access, more sustainable management of resources and independence from discretionary interference by bureaucrats. More than 50 percent of the peri-urban population in Africa and more than 40 percent in Asia live under informal tenure and generally have relatively insecure land rights. Although similar figures are not available for rural areas, many rural land users are reported to make considerable investments in land as a way to establish ownership and increase tenure security (Platteau, 2000; Otsuka, 2001), illustrating that tenure security is highly valued. A first benefit from increased tenure security that can be measured is the increase in land users' investment incentives. Some studies report a doubling of investment on land with more secure tenure; land values in such cases are reported to be between 30 and 80 percent above those where there is a greater insecurity (Feder, 2002). Transferability of land will increase this effect and is important in situations where the scope for transacting land between less and more productive producers has increased, for example because of increased development of the non-agricultural economy and rural - urban migration (Deininger et al., 2003). Higher tenure security will also reduce the time and resources individuals need to spend on securing their land rights, allowing them to invest these resources elsewhere. Finally, where effective demand for credit exists, giving formal title to land can help producers gain access to credit and improve the functioning of financial markets. The impact of such credit access may be differentiated by size of landholdings and attention will therefore be required to the anticipated equity effects (Carter and Olinto, 2003).

In situations where these economic effects associated with secure tenures are likely to be muted in the near future, more gradual and lower-cost approaches to securing land rights and improving tenure security may be more appropriate, with the possibility of upgrading once the need arises. This will allow progressive provision of many, if not all, of the benefits from increased tenure security at lower cost.

Ensuring secure land tenure will be of particular relevance for groups who were traditionally discriminated against. Attention to women's rights will generally be warranted, particularly where women are the main cultivators, where many males migrate out in pursuit of non-farm activities, or where control of productive activities is differentiated by gender, and where adult mortality with unclear inheritance regulations may undermine women's livelihoods in the case of their husband's death, as in Africa in the context of HIV/ AIDS (Deininger and Castagnini, 2002).

Ways to increase tenure security

Even though formal title will increase tenure security in many situations, experience indicates that it is not always necessary, and is generally not a sufficient condition, for improving the use of the land resource. The goal of providing tenure security for the long term, administered in a cost-effective way through institutions that combine legality with social legitimacy, can be achieved in a variety of ways, depending on the situation.

In customary systems, legal recognition of existing rights and institutions, subject to minimum conditions, is often more effective than premature attempts at establishing formalized structures. Legally recognizing customary land rights subject to a determination of membership and the codification or establishment of internal rules and mechanisms for conflict resolution can greatly enhance occupants' security. Delimitation of the boundaries of community land can reduce the threat of encroachment by outsiders while leaving pre-existing procedures within the community to assign rights within the group. Conflicts historically often erupt first in conjunction with land transfers, especially to outsiders. Where such transfers occur and are socially accepted, the terms should be recorded in writing to avoid ambiguity that could subsequently lead to land-related conflict (Lavigne Delville et al., 2002).

The legal occupation of state land will generally be best served by appropriate, transparent procedures instituted through a well-designed legal framework and administered by efficient institutions. Illegal occupants on state land have often made considerable efforts to increase their levels of security, in some cases through significant investments, but often remain vulnerable to eviction threats. Because of their limited land rights they often have no incentive to make full use of the land they occupy. Where appropriate, giving legal rights in land, regularizing possession and resolving conflicts that may arise in this process will tend to provide the security necessary to encourage investment. In many situations, political or other considerations may preclude the award of full private property rights. If existing institutions can credibly commit to lease contracts and have the capacity to manage these long-term leases, giving users secure, transferable, long-term lease rights will permit realization of most, if not all, the investment benefits associated with full ownership. In these cases, recognition of long-term peaceful occupation in good faith and award of long-term land leases with provisions for automatic renewal may be the most desirable option. If the leases awarded by state institutions are not credible, full privatization may be a more valid option to give occupiers sufficient security of tenure and the associated benefits. An indicator for limited credibility of leases may be that, even where there is strong effective demand for credit, financial institutions will not accept long-term leases as collateral.

Where individual title is the option of choice, inefficiencies in the land administration institutions responsible for demarcation of boundaries, registration and record keeping, adjudication of rights, and resolution of conflict can still preclude the realization of many of the benefits of secure tenure. If these institutions are not working well, are poorly coordinated, inefficient or corrupt, transaction costs may increase substantially. This will tend to result in increasing proportions of transactions being conducted informally rather than formally, and may well disproportionately disadvantage the poor. Where this is the case, institutional reform, including improved coordination within the government and with the private sector, will be a precondition for the state's ability to deliver effectively property rights in land.

Even though most countries mandate in principle equality of men and women before the law, the procedures used by land administration institutions may discriminate against women, either explicitly or implicitly. In many instances, there are benefits to be obtained from a more proactive stance in favour of awarding land rights to women by governments, together with more rigorous evaluation of innovative approaches aiming to accomplish greater gender equality in control of conjugal land.


Rural dwellers normally access land through a wide variety of different channels (de Janvry et al., 2001). Land markets can play an important role in this by allowing those who are productive, but are either landless or own little land, to secure access to land. Land markets also facilitate the exchange of land as the off-farm economy develops and, where the conditions for doing so exist, provide a basis for the use of land as collateral in credit markets. Capital market imperfections, policy distortions and other factors, however, may often prevent land sales markets operating effectively in practice, and thus from contributing to increasing levels of productivity or reducing poverty. This has led some observers to take a negative stance on any type of land market activity and to support government intervention in land markets, despite the considerable scope of rental markets and the evidence of limited effectiveness of government intervention in such markets.

Conceptual foundations

To understand why in some cases land sales markets may fail to contribute to improving productivity and equity, it is necessary to review the conceptual foundations that underlie the operation of land markets and how some of the market imperfections frequently encountered in rural areas of the developing world have a differential impact on land rentals and sales.

Imperfections in labour and credit markets, and the scope of economies of scale in production, will affect the way in which land markets function. A large body of literature has demonstrated that unmechanized agriculture generally does not exhibit economies of scale in production (Carter, 1984; Benjamin, 1995; Deininger and Feder, 2001), even though economies of scale from marketing may in some cases be transferred back to the production stage. At the same time, the need to supervise hired labourers closely implies that owner-operated farms are more efficient than those that rely predominantly on large numbers of permanent wage workers. However, where other markets do not work well or transaction costs are high, credit markets tend to favour farmers who own larger amounts of land. In environments where access to credit is important, this can lead to the appearance of a positive relationship between farm size and productivity that may counteract the supervision cost advantage of small owneroperated farms. These factors will have different implications for land rental as compared with sales markets.

Rental markets are characterized by relatively low transaction costs and, in most cases where rent is paid on an annual basis, require only a limited initial capital outlay. This, together with participants' ability to adjust contract terms so as to overcome failures in capital and other markets, implies that rental is a more flexible and versatile means of transferring land from less to more productive producers than are sales markets (Sadoulet, Murgai and de Janvry, 2001). Renting is thus more likely to improve overall productivity and, in addition, can provide a stepping stone for tenants to accumulate experience and possibly make the transition to land ownership at a later stage.

The importance of tenure security for rental markets is illustrated by the fact that, where land tenure is perceived to be insecure, long-term contracts are unlikely to be entered into. In fact, relatively insecure tenure has been claimed to be one of the key reasons for the virtual absence of long-term rental contracts in most Latin America countries (Jaramillo, 1998).

The literature has long pointed out that rental arrangements based on fixed rather than shared rent are more likely to maximize productivity (Cheung, 1969). Poor producers may, however, not be offered fixed-rent contracts at least in part because of the risk of default. In these circumstances, sharecropping has emerged as a second-best solution. Whether sharecropping contracts are associated with sizeable inefficiencies and whether government action could lead to an improvement have been subject to considerable discussion. In practice, the efficiency losses associated with sharecropping contracts are found to be relatively small, and improving on them through government intervention has proven to be difficult, if not impossible. In view of the fact that the contracting parties have considerable flexibility to adjust contract parameters so as to avoid inefficiencies, for example by entering into long-term relationships or through close supervision, the general consensus is that prohibition of sharecropping or other forms of rental contracts is unlikely to improve productivity (Otsuka, Chuma and Hayami, 1992). The welfare impact of rental contracts depends on the terms of the contract, which in turn are affected by the outside options open particularly to the weaker party. Altering the balance of supply and demand through efforts to expand the range of options available to tenants, for example via access to infrastructure and non-agricultural labour markets, is likely to have a more beneficial impact on land rental market outcomes and rural productivity than is prohibition of certain options.

Transfers of land-use rights through rental markets can go a long way towards improving productivity and welfare in rural economies. At the same time, the ability to transfer ownership of land will be required to improve the potential for the use of land as collateral in credit markets, and thus to contribute towards the basis for effective development of financial markets in rural areas. It is important to note, however, that sales markets will tend to be more affected than rental markets by imperfections in credit markets as well as by other distortions such as subsidies to agriculture.

Activity in any market depends on participants' expectations regarding future price movements, creating a potential for asset price bubbles that are not justified by the underlying productive value as well as a tendency towards speculative acquisitions by the wealthy in anticipation of major capital gains. Land markets are no exception to this. Ample historical evidence shows that in risky environments distress sales will occur, with consequent negative impacts on livelihoods over time. The impact of such distress sales is magnified by the typically thin and volatile land sales markets in most rural areas. The relatively high transaction costs associated with land sales, which are often further increased by government intervention, can exacerbate this problem. A further limitation on the prospects of land acquisition by the poor tends to be the segmentation of rural land markets, whereby certain socio-economic strata only deal with each other or where sales remain informal. All these factors imply that land acquisition by the poor through the land sales market will be difficult, and that as a consequence, the potential for productivity-enhancing land redistribution through sales markets is likely to be very limited.

Policy implications

To realize the full benefits that can accrue from rental markets, governments need to ensure that tenure security is adequate to facilitate long-term contracts, and eliminate unjustified restrictions on the operation of such markets. Limitations on the operation of land sales markets may, in some cases, be justified on theoretical grounds. In practice, however, efforts to implement such restrictions have almost invariably weakened property rights with the result that often the unintended negative consequences of sales market restrictions have far outweighed the positive impacts they were intended to achieve. With few exceptions in the case of rapid structural change, there is little to recommend such restrictions as an effective tool for policy.

Short-term rental contracts will only provide limited incentives for users to undertake land-related investment. For longer-term contracts to be feasible, long duration of land rights and high levels of tenure security, coupled with enforceable provisions for a tenant's compensation for the unexpired value of improvements, are critical. Finding ways to ensure such tenure security is a key policy issue. Another constraint on land rental markets has been the imposition of rental ceilings coupled with the granting of statutorily secure status to tenants. Although such tenancy regulation will benefit sitting tenants if effectively implemented, it may not be an efficient way of transferring resources to the poor, even in the short term. In the longer term, such restrictions will reduce the supply of land available to the rental market and undermine investment, directly hurting the poor. For example, in Mexico, temporary rental of a plot of land was a major means for coping with economic hardship and enabling participation in off-farm labour markets. Prohibitions against renting of land merely drove this market into informality, thereby creating a secondary market that was even more active than it would have been in the absence of such regulation, but greatly reducing the benefits from doing so for participants (Gordillo, de Janvry and Sadoulet, 1998). Evidence from countries that have eliminated such restrictions suggests that doing so can not only improve access to land via rental markets, but can also increase households' participation in the non-farm labour market and, by reducing the discretionary power of bureaucrats, improve governance (World Bank, 2002). Key policy issues are therefore how to sequence the elimination of such restrictions in a way that does not undermine equity and, in particular, protects sitting tenants, and how to promote and provide for appropriate and sustainable landowner - tenant relations (FAO, 2001).

Land ownership ceilings have generally been ineffective as a means to facilitate the break up of large farms, and instead have led to red tape, spurious subdivisions and corruption (Appu, 1997). Where these ceilings were low, they have apparently had a negative impact on investment and land owners' ability to access credit, as in the Philippines. The only situation where they can be justified is where high enough land ceilings may help to limit the speculative acquisition of land, something that may be relevant in some CIS countries. In the vast majority of cases, however, restrictions on land sales markets have undermined tenure security and ended up making things worse than they were at the outset.

Credit market imperfections will affect the functioning of sales markets and may lead to situations in which government intervention could, in a hypothetical world of perfect implementation, lead to outcomes that would improve efficiency and equity. Implementing such interventions has, however, proved to be exceedingly difficult in practice. Restrictions on the transferability of land imposed by a central authority have generally limited credit access and often only pushed such transactions into informality. Except in situations of rapid economic transition, they are unlikely to be justified. Local communities are more likely to be able to appreciate the costs of limiting the transferability of land to outsiders or the benefits of eliminating such restrictions than are central government bureaucrats. As long as such decisions are reached in a transparent way and can be enforced, it may be more effective to allow communities to decide on whether to maintain or drop restrictions on land transactions with outsiders. Particularly in the case of customary systems of land tenure this may be more effective than imposing central restrictions that cannot be enforced.

High levels of fragmentation are caused either by successive subdivision in the course of inheritance, a pattern that has been exacerbated in much of Central and Eastern Europe by the political imperative to restitute land to owners and their successors in title after half a century, or by the desire to award at least one plot of a specific quality or use type to each producer in the process of land privatization and distribution. Such microparcels are often thought to lead to inefficiencies in agricultural production, with the magnitude and importance of such inefficiencies increasing as agricultural production becomes more mechanized The levels of fragmentation in Central and Eastern Europe (CEE), coupled with the demographically ageing and contracting rural populations, mean that this issue has broad rural development ramifications. Dealing with fragmentation case by case based on individual initiative may incur high costs of negotiation, something that has provided the justification for governments to adopt programmes to complement market mechanisms in an effort to facilitate more rapid consolidation of holdings at lower costs. Although positive benefits from such programmes are reported from Western Europe, implementation of the programmes has been slow. Evidence from China highlights that, in environments where administrative capacity is limited, programmes aiming at consolidation can run into great difficulties and fail to yield the expected benefits. Given that the cost of the classic Western European models of land consolidation is not a realistic option for Central and Eastern Europe, rigorous evaluation of the economic and social costs and benefits of different approaches to land consolidation in the circumstances of Central and Eastern Europe is very desirable in order to identify the most suitable approaches.


Decentralized transactions based on secure land rights are likely to be more conducive to efficiency and equity than administrative intervention, offering less scope for corruption and other undesirable side-effects. This is especially the case as the number of exchanges increases and contractual details become more complex. Governments have a clear role to play in a number of respects. Governments need to help establish the legal and institutional framework within which land markets can function, and create a policy environment that rewards transactions that increase productivity and welfare.

Devolution of authority over state land has emerged as a critical issue in many contexts, although the need for this is particularly obvious in the case of farm restructuring in CEE and CIS countries. Where land distribution is highly unequal and large amounts of productive land are un- or underutilized, governments may find it necessary to deal with fundamental issues related to the distribution of asset endowments that markets will not be able to address. Governments have fiscal and regulatory instruments at their disposal to provide incentives for land use that maximize social welfare, for example by helping to internalize effects external to individual land users. Many developing countries rely disproportionately on a regulatory approach to achieve such aims notwithstanding their lack of administrative capacity. This often encourages discretionary bureaucratic behaviour. In Mexico, for example, in the reformed sector state interventions developed strong secondary markets and suffocated peasants' initiatives (Gordillo, de Janvry and Sadoulet, 1998). Awareness of the rationales for specific initiatives and the different mechanisms and the most appropriate levels for potential interventions can help to promote approaches that are likely to produce more satisfactory outcomes: improving compliance, and reducing unnecessary red tape.

Farm restructuring

The performance of production collectives, as opposed to service cooperatives for marketing, has been dismal worldwide and many of these production units in CIS and CEE countries were economically unviable long before the political changes of the 1990s. The process of reform was affected by a number of factors. First, many of the production units performed important social functions, and local governments have emerged only slowly to take over these functions. Second, it took time to establish the infrastructure and supporting institutions needed to facilitate the smooth operation of other critical markets. Finally, the sheer magnitude of the transition and the large number of interests affected made a smooth and direct procession towards a stable post-transition equilibrium less likely.

The specific modalities of farm restructuring were, in fact, determined by political processes rather than economic considerations. Most CEE countries adopted restitution of land, whereas the majority of CIS countries and Albania opted for equal distribution of land to farm members. The various approaches to distribution of physically demarcated plots, as adopted in Albania, the Kyrgyz Republic and Moldova, were typically slower and caused considerable fragmentation, whereas in principle the distribution of land shares that could be taken out of the collective under specified procedures could have allowed quick privatization, but in practice generally led to limited changes in the structure of production. The malfunctioning of rural output and factor markets in a risky environment has in many cases prevented households from leaving former collectives. Improvements to the legal and institutional environment will therefore be critical for the development of rural markets, including those for land. To ensure that a gradual improvement in their functioning will take place, establishing a correspondence between land shares and physical property and eliminating inappropriate implicit and explicit restrictions on land rental will be important.

Land reform

The fact that in many countries the current land ownership distribution has its origins in discriminatory policies rather than in market forces has long provided a justification for adopting policies aimed at land reform. The record of such policies is mixed. Land reforms have been very successful in Asia (Japan, the Republic of Korea, Taiwan, Province of China) and positive impacts have been reported from some African countries such as Kenya and Zimbabwe in the early phases of their postindependence land reforms (King, 1977; Gunning et al., 2000; Jeon and Kim, 2000). At the same time, land reforms in Latin America failed to live up to their objectives and remain incomplete in many respects (de Janvry and Sadoulet, 1989). Key reasons for the limited impact were political resistance and institutional barriers that were often reinforced by the unequal land distribution. In addition, reforms were often guided by short-term political objectives, and an "agrarian" emphasis on full-time farming increased their cost while reducing the number of potential beneficiaries and the reforms' impact on poverty.

Where extreme inequality in land distribution and underutilization of vast tracts of productive land coexist with deep rural poverty, a case for redistributive measures to increase access to land by the poor can be made, both politically and from an economic perspective. Even in such cases, a number of different instruments (ranging from expropriation with compensation to activation of rental markets) to encourage and effect the transfer of land will normally be appropriate. To ensure productive use of the land, land reform needs to be combined with other programmes at the government's disposal. To ensure success, access to non-land assets and working capital and a conducive policy environment are essential (Deininger, 1999). Those benefiting from land reform need to be able to access output markets as well as credit, the selection of beneficiaries needs to be transparent and participatory, and attention needs to be paid to the fiscal viability of land reform efforts.

Governments are more likely to meet these challenges if they use the range of mechanisms at their disposal in concert and with the objective of maximizing synergies between them. This also implies a need to integrate land reform into the broader context of economic and social policies aimed at development and poverty reduction, and to implement programmes in a decentralized way with maximum participation by potential beneficiaries and at least some grant element. Given the continuing relevance of the issue, the often heated political debate surrounding it and the lack of quantitative evidence on some more recent approaches, rigorous, open and participatory evaluation of ongoing experiences is particularly important.

Land conflict

Increasing scarcity of land in the presence of high rates of population growth, possibly along with a historical legacy of discrimination and highly unequal land access, implies that many historical and contemporaneous conflicts have their roots in struggles over land. This suggests a special role for land policy in many postconflict settings. The ability to deal with land claims by women and refugees, to use land as part of a strategy to provide economic opportunities to demobilized soldiers, and to resolve conflicts and overlapping claims to land in a legitimate manner will greatly increase the scope for postconflict reconciliation. It will also encourage the speedy recovery of the productive sector, a key for subsequent economic growth. Failure to put in place the necessary mechanisms can keep conflicts simmering, either openly or under the surface, with high social and economic costs. These costs rise substantially over time as subsequent transactions will lead to a multiplication of the number of conflicts, which can result in generalized insecurity of land tenure.

Although discussion of the issue in the literature is still limited, even comparatively "minor" conflict over land can significantly reduce productivity and, as it is likely to affect the poor disproportionately, equity (Deininger and Castagnini, 2002). Such conflicts are particularly likely in situations of rapid demographic or economic transition. In such cases existing institutions need the authority and legitimacy to reinterpret rules in an authoritative fashion, thus providing scope for preventing relatively minor conflicts from evolving into large-scale confrontation. Instead of opening up parallel channels for conflict resolution, something that has often contributed to increasing rather than reducing the incidence of land-related conflict, building on informal institutions that have social legitimacy and can deal with conflicts at low cost may be preferable.

Land taxation

Local governments' lack of their own adequate sources of revenue may not only affect their financial viability, but also limit their responsiveness and accountability to the local population. Land taxes have long been identified as an appropriate potential source of revenue for local governments that generates minimal distortions and at the same time can encourage more intensive land use and discourage speculative land accumulation. Even though the extent to which land taxes are used varies widely across countries, actual revenues are generally well below their potential. Reasons for this include deficient incentive structures and neglect of issues relating to assessment, tax administration and tax rate setting, in addition to the political difficulty of having significant land taxes (FAO, 2002).

The high visibility of land taxes implies that establishing them may be difficult politically, especially in settings where landowners still wield considerable political power. Democratic election of local governments and administrative support to the different aspects of tax collection can help to encourage the appropriate design and successful subsequent collection of land taxes. This may be further encouraged by schemes to encourage fiscal responsibility and tax collection at the local level, for example by matching of taxes collected locally with central funds. These taxes can therefore have a significant impact on incentives for effective land use, local government revenues, the type and level of public services provided, and governance.

State land ownership

In both developed and developing countries, the state has generally proven not to have the capacity to bring land in its ownership and management to its best use. Nonetheless, large tracts of land in many countries continue to be under state ownership or management. In periurban areas, unoccupied state land of high potential often lacks investment and is subject to bureaucratic red tape, non-transparent processes of allocation and corruption. Experience demonstrates that privatization of such land could not only yield significant resources for local governments, but also increase investment and the effectiveness of land use. If public land has been occupied by poor people for a long time and significant improvements have been made, such rights may be recognized and formalized at a nominal cost to avoid negative equity outcomes. In cases where state land of high potential, especially in urban areas, is unoccupied, auctioning it off to the highest bidder may be the option of choice. This may be particularly appealing if the proceeds can be used to compensate original land owners or to provide land and services to the poor at the urban fringes at lower cost.

Governments commonly have the right of compulsory land acquisition, with compensation, for broader public benefit. At the same time, the way in which many developing country governments exercise this right, especially for urban expansion, can undermine tenure security. As often little or no compensation is paid, this also has negative impacts on equity. In some cases anticipation of expropriation without compensation has led landowners to sell their land in informal markets at low prices. In effect they have been forced to part with key assets, possibly at a fraction of their real value. A negative side-effect of this is the encouragement of unplanned development and urban sprawl that will make subsequent provision of services by government harder and more costly. In view of the fact that state ownership of land has yielded disappointing results, regulation of land use through appropriate forms of planning control is now agreed to be the most preferable option. Such planning is commonly implemented to reduce undesirable externalities, to help maintain availability of public goods such as landscapes and historical values, or to facilitate more effective provision of services by the government. Where externalities from land use arise, limits on landowners' discretion with respect to land use are justified. The questions that need to be answered in trying to deal with these are whether such measures should be imposed by central or local authorities and how specific interventions should be designed.

In general, zoning and other land-use regulations should be established based on a clear assessment of the capacity needed to implement them, the costs of doing so, and the way in which both costs and benefits will be distributed. Failure to do so has often resulted in centrally imposed regulations that could either not be implemented with existing capacity, or doing so was associated with very high cost. Such costs are frequently borne by the poor, and are often evidenced by rent seeking. Often, too little thought has been given to providing mechanisms that would allow local communities to deal with such externalities in a more decentralized and therefore less costly way. Gradual devolution of responsibility for land-use regulation and participatory planning to local governments, if coupled with appropriate capacity building, could make a significant contribution to efforts towards more effective decentralization.


Land policy addresses structural issues that, in the longer term, need to be addressed in order to ensure that the economic opportunities opened by other policy changes will benefit the broad majority of the poor. Measures to increase land tenure security, reduce transaction costs of transferring land rights and establish regulatory frameworks to prevent undesirable externalities typically cut across traditional ministerial boundaries, with institutional responsibilities dispersed among, for example, ministries of agriculture, land, environment, land reform and urban planning. It will be essential to have a long-term vision of a broadly backed development strategy that specifically includes land issues to overcome the compartmentalization and lack of coordination, coupled with limited capacity, that are normally the result of such arrangements. The extent to which broad development objectives and more specific sectoral goals are achieved should be monitored independently and jointly with other government programmes aimed at poverty reduction and economic development.

In addition to cutting across institutional boundaries, issues of land policy are generally complex, country-specific, of a long-term nature and often controversial politically. This demands particular attention to the sequencing of reforms as well as their political economy. Even if land-related interventions will make society as a whole better off, they may be challenged by vested interests that derive considerable benefits from the status quo. Effective policy reform will be made more feasible by open and broadly based policy dialogue, carefully chosen and evaluated pilot projects and sharing of experience across countries. At the same time, this will be essential to help build local capacity for policy formulation and implementation. The papers assembled in this volume constitute an important step in this direction.


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