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«July 31, 2012 ∗ I thank Chris Barrett for allowing me to use these data, Jean Claude Randrianarisoa for data assistance, the USAID BASIS CRSP for ...»

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The Productivity Impacts of

Formal and Informal Land Rights:

Evidence from Madagascar∗

Marc F. Bellemare†

July 31, 2012

I thank Chris Barrett for allowing me to use these data, Jean Claude Randrianarisoa for data assistance, the USAID

BASIS CRSP for financial support for data collection, Keith Shepherd and his laboratory at the World Agroforestry

Centre for performing the soil analyses. I also thank two anonymous referees as well as Chris Barrett, Stefan Dercon, Marcel Fafchamps, David Fiocco, Anirudh Krishna, Jill Pike, André Teyssier, and Andrew Zeitlin for excellent suggestions as well as my colleagues in the Law and Social Science workshop at Duke, whose comments I have benefitted from early on. I am also grateful for comments from seminar participants at Namur, Oxford, and Toulouse. The first version of this paper, titled “The Productivity Impacts of de Jure and de Facto Land Rights,” was written while I was on leave at the University of Namur, whose generous financial support I wish to acknowledge.

† Assistant Professor, Sanford School of Public Policy, Box 90312, Duke University, Durham, NC 27708-0312,

Web: http://www.marcfbellemare.com, Telephone: +1 (613) 9382, Facsimile: +1 (919) 681-8288, Email:


1 Abstract This paper studies the relationship between land rights and agricultural productivity.

Whereas previous studies used proxies for soil quality and instrumental variables to control for the endogeneity of land titles, the data used here include precise soil quality measurements, which in principle allow controlling for the unobserved heterogeneity between plots. Empirical results suggest that formal land rights (i.e., land titles) have no impact on productivity, but that informal land rights (i.e., landowners’ subjective perceptions of what they can and cannot do with their plots) have heterogeneous impacts on productivity.

Keywords: Institutions, Property Rights, Land Rights, Land, Productivity JEL Classification Codes: K11, O12, O13, Q15 Running Title: The Productivity Impacts of Land Rights 2

1. Introduction In his best-selling book The Mystery of Capital, de Soto (2000) claims that the poor in developing countries own about US$1 trillion worth of assets − a figure roughly comparable to the 2010 gross domestic product of South Korea − but that it is often the case that the lack of well-defined property rights in the same developing countries prevents the poor from capitalizing on those assets.

Leaving aside the assumptions de Soto makes about the value of those assets and the efficacy of the legal system in most developing countries (Woodruff 2001), empirical studies by Acemoglu et al. (2001, 2005) and Acemoglu and Johnson (2005) have shown that institutions – property rights institutions in particular – have not only had long-term impacts on comparative economic development, but they are also the main cause of differences in economic performance between countries.

Within countries, more specifically in developing-country agriculture, economists have theorized since the works of Feder and Noronha (1987), Feder and Feeny (1991), and Migot-Adholla et al.

(1991) that there are three causal mechanisms through which well-defined property rights can increase agricultural productivity (and thus the welfare of landowners) within an effective legal system. First, property rights allow landowners to lease out or sell their plots of land to more productive individuals. Second, property rights give landowners stronger incentives to maintain and improve their plots. Third, property rights allow landowners to use their plots as collateral to obtain loans that can be used to finance investments in land or the purchase of production inputs.

In other words, clearly defined land rights should lead to productivity gains, all else being equal.1 As a result, land reform has been part and parcel of the development Zeitgeist for some time, although the empirical evidence on the impact of land tenure on productivity is, at best, mixed (Place 2009). In several countries, a land title is often worth no more than the paper it is printed on, either because the state has failed to broadcast its power to remote rural areas (Herbst 2000) or because the transaction costs involved in defending one’s claim to a plot of land through the legal system are exceedingly high (Fafchamps and Minten, 2001).

3 This paper looks at the effect of land rights in Madagascar by looking at whether formal land rights (whether a plot is titled) and informal land rights (whether the landowner believes she can lease the plot out, sell it, plant trees on it, build a tomb on it, and by whether she believes her children will have the same rights as herself on the plot) have any impact on agricultural productivity. In this paper, “informal land rights” thus refer to the landowner’s subjective beliefs regarding whether she can do specific things on or with her plot of land.2 In this context, knowing the productivity impacts of land rights is crucial for policy. In April 2005, the Millennium Challenge Corporation signed a $110 million, four-year compact with the government of Madagascar – more than 2 percent of Madagascar’s gross domestic product that year – which included an important land tenure component, and whose goal was to “increase land titling and land security” (Millennium Challenge Corporation 2010). But this raises the question of whether land titles have a discernable impact on agricultural productivity in Madagascar. One of the goals of this paper is thus to show whether these titles actually improve agricultural productivity.

Although the impact of land rights has previously been studied in Madagascar (Jacoby and Minten 2007), the data used in this paper allow building upon previous results so as to potentially go one step further as far as the identification of the impact of land rights on agricultural productivity goes. The data include several plots per household, which in principle allows controlling for the unobserved heterogeneity between households.3 More importantly, even though there already are several studies on the impacts of land rights on agricultural investment or productivity or both, the data used in this paper include precise soil quality measurements (i.e., carbon, nitrogen, and potassium percentages; soil pH; and clay, silt, and sand content) for each plot, which allows one to effectively control for the unobserved heterogeneity between plots instead of having to rely on proxies for soil quality. Such soil quality controls have so far been missing from the literature on the productivity impacts of land rights in developing countries.4 An empirical specification of the agricultural productivity equation lies at the core of this paper which includes both formal and informal land rights as well as the plot characteristics that are 4 both readily observable (e.g., soil color; position on the toposequence; source of irrigation, etc.) and those that are typically unobservable (e.g., soil carbon, nitrogen, and potassium content; soil pH; clay, silt, and sand percentages) as potential determinants of agricultural productivity.5 The main finding is that land titles appear to have no statistically significant impact on agricultural productivity in this context. This finding is robust to the various alternative specifications presented in this paper. In contrast, some informal land rights are significantly associated with changes in agricultural productivity, but in puzzling ways: the right to lease the plot out and the right to build a tomb on it are associated with a decline in productivity, whereas the right to plant trees is associated with an increase in productivity. The hypothesized mechanisms through which these informal land rights affect productivity are discussed below.

By including soil quality controls, this paper improves upon the usual strategy aimed at identifying the impact of land rights by controlling for the (typically) unobserved heterogeneity between plots that has plagued previous studies (Besley 1995; Brasselle et al. 2002). Indeed, the inclusion of soil quality measurements as a determinant of agricultural productivity has the potential to purge the error term of its correlation with whether a plot is titled. In other words, because individuals may seek to title higher quality plots (Besley 1995), the inclusion of soil quality measurements reduces the bias of the estimated effect of land titles.

The contribution of this paper to the literature on land rights is thus threefold. First and foremost, the inclusion of precise soil quality measurements allows accounting for an important source of unobserved heterogeneity between plots, which in turn allows eliminating an important source of bias in the estimated relationship between land titles and agricultural productivity – a source of bias that is present in almost all observational studies of the impacts of land rights. Second, the core finding in this paper – that land titles do not increase productivity in this context – flies in the face of the dominant development discourse, which almost takes the claim that land titles improve productivity as a truism. Third, this paper studies the impact of informal land rights (i.e., subjective landowner perceptions regarding what they can and cannot do with their plots) alongside formal land rights (i.e., land titles) and shows that these informal land rights have heterogeneous, sometimes unexpected impacts on productivity. Taken together then, the inclusion of household fixed effects, precise soil quality measurements, as well as formal and

–  –  –

2. Land Titles, Land Rights, and Land Tenure Institutions in Madagascar The state of land tenure institutions in Madagascar is best described by the Lettre de politique foncière, a document summarizing the proceedings of a workshop on land tenure organized by the Ministry of Agriculture in early 2005.6 The Lettre de politique foncière stemmed directly from the objectives delineated in Madagascar’s Poverty Reduction Strategy Paper and was written in order to describe the situation and clearly define priorities for policy makers.

The Lettre de politique foncière describes how customary rights have gradually receded since Malagasy independence in 1960 as land has increasingly become a traded asset. As a result, landowners have been increasingly turning to the state to define their property rights. Because untitled and uncultivated lands officially belong to the state, half a million requests to obtain government lands are pending (Bertrand et al. 2008). Land titling, however, has been and is still proceeding at a snail’s pace: a total of 330,000 titles have been delivered over the last century and, as of 2005, only about 1,000 new titles were delivered annually.7 Some requests for land titles have been pending for several decades (Teyssier et al. 2008), and as plots are passed on from one generation to the next and broken up into smaller plots through bequests, formal land titles fall into obsolescence due to the prohibitive costs of keeping them up to date. Moreover, according to Teyssier et al. (2007), titling a plot of land can take up to 10 years and cost about US$900 once one accounts for bribes and other “unofficial” costs. In a country where the GDP per capita in 2010 was equal to $415 (IMF 2011), this represents a substantial amount of money.

In addition, the central government agency in charge of land tenure is overwhelmed. The buildings in which titling records are held are often in an advanced state of decay, which makes record-keeping a heroic endeavor as some records have already been irreversibly damaged. The government employees in charge of the administration of lands face difficult working conditions and often have to bring their own materials to work. The Lettre de politique foncière concludes that the land titling system is bankrupt and that many landowners feel insecure on their own 6 lands. Furthermore, land conflicts occur frequently, acquiring a land title is practically impossible without bribing the relevant authority figures, and landowners appear to have little to no incentive to invest in their own plots (Dabat and Razafindraibe 2008).

Among the causes identified by the Lettre de politique foncière for this situation are (i) a lack of legal knowledge among landowners; (ii) the complexity, length of time, and costliness of the procedure leading up to the acquisition of a land title (Teyssier et al. 2008); (iii) the lack of funds allocated to the management of lands at the local level; (iv) the centralization of land administration; and (v) the lack of intermediaries between the central government and smallholders.

Small landowners have adapted to the situation. Many rural communities have chosen to opt out of the legal system (Bernstein 1992) by putting in place their own informal system of land titles, called petits papiers (“small papers”; see Jacoby and Minten 2007 for a discussion). Under this system, which has burgeoned all over the country even in the absence of a coordinated effort, informal land titles are officialized at the community level, and many land sales are accompanied by a petit papier. Because they are informal, however, these petits papiers are only valid within the community and do not protect landowners against the possibility of adverse possession from outside the community (Baker et al. 2001).8 As a consequence of the Lettre de politique foncière, important efforts have been made since 2005 to reform land tenure institutions in Madagascar. Generally speaking, the objective of these reforms has been a greater recognition of untitled private property. In 2005, the management of lands was decentralized at the commune level and the ownership of untitled private property was legally recognized (Republic of Madagascar 2005). In 2006, a law and subsequent government decree have allowed communes to open a guichet foncier (land tenure office) where landowners could get certificates documenting their property rights on their plots, and where an official map of the lands in the commune would be kept (Republic of Madagascar 2006). Further efforts have been made to map out and classify public lands as well as define rights on these lands (Republic of Madagascar 2008a; 2008b). As of writing this paper, even though the coup d’état of March 7 2009 has caused a decline in the amount of available funds available for land tenure via a sharp drop in foreign aid, the reform continues to move forward (Programme national foncier 2011).

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