The paper is structured as follows:<sup>Sectiontwo providesbackgroundonVietnameselandpolicy,the</sup> conceptual framework and the econometric<sup>approach.Section threedescnbesthe data used and summary</sup> statistics on socio-economic characteristics<sup>and land marketparticipationby samplehouseholds.Section</sup> four discusses the econometric evidence<sup>on demandandsupplyof landinsalesandrental markets,</sup> respectively. Section five concludes.

# 2. Background and conceptual framework

We set the scene by describing<sup>recentlandpolicy initiativesinVietnamand,basedonageneral</sup> discussion of land and other factor<sup>marketsin developingcountries, present the conceptualmodeland the</sup> estimation strategy underlying our<sup>empirical analysis.Conceptually,wenotethatimperfectionsin labor</sup> and capital markets can give rise<sup>tosub-optimaloutcomesinlandmarketsanddiscusssomeof the</sup> empirical evidence with respect<sup>tolandrentalandsalesmarkets,respectively.Theconceptual model</sup> identifies ability, off-farm development,<sup>and government policies as key elements affectingfunctioningof</sup> rental markets and discusses how initial<sup>wealth,incidenceof shocks,andaccessto credit will modify</sup> these in the case of land sales markets<sup>so as to derive empirically testable hypotheses.</sup>

# 2.1 Land policy in Vietnam

From 1981, Vietnam started to transform<sup>itsruralsector from collectivizedagriculturalproduction toa</sup> system based on households' initiative,<sup>a movethatculminated in the passageof the1988LandLaw</sup> (World Bank 2000). Studies have<sup>shown that this led to significant increasesin overall ruralproductivity,</sup> although pre-existing differences between<sup>North andSouth were not eliminated(Pingaliand Xuan1992,</sup> Tran 1998). After 1988, further policy<sup>reformswereinitiated to increasesecurityof land userights and</sup> liberalize inputs and outputs markets.<sup>A newlawwas enactedin July1993todealwithfactorssuch as</sup> threats of administrative reallocation,<sup>short durationof use rights,lack of transferabilityand the inability</sup> to use land as collateral, all of which<sup>wereperceivedto discourage investmentandprecludefurther</sup> development of land markets. This<sup>lawestablishesthe rightto inherit, transfer,sell,leaseor mortgage</sup> land use (though not ownership) rights<sup>and to receivecompensationin case of expropriation.The new law</sup> also extended the duration of land use<sup>rightsto20yearsforannual50 yearsfor perennial crops.Allof</sup> these reforms together have greatly<sup>increasedthe transferabilityof land rights, providinga near-idealcase</sup> to compare in practice the functioning<sup>of salesand rental markets.</sup> The literature suggests that these reforms<sup>havenot onlyincreasedefficiencybut alsohadconsiderable</sup> equity benefits (Ravallion and van de<sup>Walle2001).Higherlevelsof issuanceof land-usecertificatesto</sup> indicate more secure land rights have<sup>beenfoundtobeassociated,at thecommunitylevel,withhigher</sup> levels in the share of total area devoted<sup>to perennials and some increaseinirrigationinvestment(Doand</sup> 3