# **1. Introduction**

The 2007/08 food price spike, together with the recognition that a number of countries are endowed with large amounts of seemingly unoccupied or unclaimed land triggered an enormous increase in private sector demand for agricultural land (Deininger and Byerlee 2011) and, implicitly, water (Rulli _et al._ 2013) to satisfy seemingly inexhaustible demands for food, fuel, and fiber. Although often described as a ‘land grab’ (Hall 2011; Pearce 2012), this phenomenon, which was most acutely felt in Africa (Anseeuw _et al._ 2012), also gave rise to expectations of private capital to complement public investment and help make up for decades of underinvestment in agriculture. This, it was hoped, could provide a stepping stone towards more rapid rural development and poverty reduction for countries with ample land resources that had remained heavily dependent on agriculture for growth and poverty reduction (Collier and Dercon 2014).

Beyond any direct increments in productivity and value added by large farms compared to earlier land uses, a key argument in this debate revolves around local spillover effects. Critics maintain that, especially if land is made available below its true value, investment promotion policies may attract speculators who fail to benefit locals and generate negative spillovers, e.g. by monopolizing factor markets or encroaching on land or water resources to which they have no right. Supporters believe that, through discovery of agroecological suitability and demonstration effects, newly established large farms can provide locals with access to new technology, credit, input, or labor markets and thus generate positive spillovers, similar to other forms of foreign direct investment (FDI). In fact, the argument that public subsides, up to the net present value of the stream of spillover benefits generated, may be justified (Collier and Venables 2012) provides the _raison d’etre_ for agricultural investment promotion agencies all over the globe.

In light of the policy relevance of this issue, the marked differences between general FDI and large-scale agricultural investment (Arezki _et al._ 2015), and the fact that in many African countries the large majority of land-related investment originates with domestic rather than foreign investors, empirical evidence to explore the presence and magnitude of such effects would be highly desirable. Yet, partly due to limited data availability, often justified by the sensitive and potentially controversial nature of such investment, such evidence is currently not available. This limits not only governments’ and investors’ ability to make rational decisions and acquire experience, but may also constrain the availability of resources to the sector, as financial intermediaries have no basis to assess and try to insure the risk associated with such ventures.

To show how often widely available survey data can help assess the presence and magnitude of spillovers, we combine data from the smallholder agricultural production survey annually conducted by Ethiopia’s Central Statistical Agency (CSA) in 2003/4-2013/14 with evidence on the evolution of the universe of currently operational large farms over this period from CSA’s large farm survey. GPS coordinates for large farms and smallholder villages allow us to construct, for every village and year, the distance to the next 2