metadata: authors: 0: author: Deininger, Klaus
1: author: Songqing Jin
count: Vietnam
docna: 0: docna: Land sales and rental markets in transition
            - evidence from rural Viet Nam
docty: Policy Research Working Paper
subtopic: Social Policy,Legal Products,Judicial System Reform,Rural Settlements,Labor Markets,Common Property Resource Development,Food Security,Legal Reform,Legislation,Regulatory Regimes,Agricultural Growth and Rural Development,Inequality,Rural Labor Markets
teratopic: Finance and Financial Sector Development
abstracts: cdata!: The extent to which households should be
            allowed to transfer their land rights in post-socialist
            transition economies is of considerable policy interest. The
            authors use data from Vietnam, a transition country that
            allows rental and sales of land use rights, to identify
            factors conducive to the development of land markets and to
            assess the extent to which land transfers enhance productive
            efficiency and transfer land to the poor. They find that
            activity in both rental and sales markets has increased
            rapidly, enhanced by the possession of long-term use rights
            and off-farm employment, and contributing to greater equity
            and efficiency of land use. While there is evidence for
            distress sales by households that experience a shock
            (death), the scope for such sales is reduced by
            well-functioning credit markets. Well-defined land rights
            and appropriate safety nets will thus help transition
            economies to realize the benefits from the operation of land markets.
geo_reg_key: 517198,517191
repnme: repnme: Land sales and rental markets in transition
            - evidence from rural Viet Nam
display_title: Land sales and rental markets in
            transition - evidence from rural Viet Nam
listing_relative_url: /research/2003/04/2309377/land-sales-rental-markets-transition-evidence-rural-viet-nam
topicv3: Agriculture and Food Security m1326205 435,Labor Markets m1326488 855,Personal Property Rights m1326571 1907,Poverty m1326687 695,Rural Development m1504505 2667
publishtoextweb_dt: 2010-07-01T00:00:00Z
historic_topic: Finance and Financial Sector Development
origu: Development Research Group (DECRG)
no_of_pages: 35
model_extractions: I POLICY RESEARCH WORKING PAPER 3013

# Abstract

The extent to which households should be allowed to transfer their land rights in post-socialist transition economies is of considerable policy interest. Deininger and Jin use data from Vietnam, a transition country that allows rental and sales of land use rights, to identify factors conducive to the development of land markets and to assess the extent to which land transfers enhance productive efficiency and transfer land to the poor. They find that activity in both rental _and_ sales markets has

> increased rapidly, enhanced by the possession of longterm use rights and off-farm employment, and contributing to greater equity and efficiency of land use.

> While there is evidence for distress sales by households that experience a shock (death), the scope for such sales is reduced by well-functioning credit markets. Welldefined land rights and appropriate safety nets will thus help transition economies to realize the benefits from the operation of land markets.

This paper-a product of Rural Development, Development Research Group-is part of a larger effort in the group to assess the impact of land policy on equity and productive development. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Maria Fernandez, room MC3-542, telephone 202-473-3766, fax 202-522-1151, email address mfernandez2@worldbank.org. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. Klaus Deininger may be contacted at kdeininger@worldbank.org. April 2003. (30 pages)

> _The Policy Research Workig Paper Seres dissemiates the fiRemgs of work in progress adeas to encourage the exchange of about development Issties An objective of the series Is to get the findings ouit qutitkly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors They do not necessarily represent the view of the World Bank, its Executive Directors, or the couintrnes they represent._

Produced by the Research Advisory Staff
Land Sales and Rental Markets in Transition:

# Evidence from Rural Vietnam

Klaus Deininger and Songqing Jin

*The World Bank, Washington DC *University of California, Davis CA

Support fiom the Norwegian ESSD Trust Fund is gratefully acknowledged.
# **Land Sales and Rental Markets in Transition: Evidence from Rural Vietnam**

# **1. Introduction**

During the last decade, countries whose rural sector had been collectivized have made considerable progress towards establishing private property rights and restructuring of agricultural production. Even before the collapse of the Soviet Union and the large-scale, though uneven, move towards individual property rights that is described elsewhere (Csaki _et al._ 2002), China has, in 1978, established the Household Responsibility System, leading to a large surge in agricultural production (Lin 1992) and other Asian countries such as Vietnam, Laos, and Cambodia, have abandoned collectivization and moved towards formulation 'of new land laws. Problems associated with collective farming also led to the disappearance of collectives in other countries such as Ethiopia, Mozambique, and Nicaragua, three countries that made the transition towards individual land rights in the 1990s (Nega 2002, Tanner 2002, Deininger and Chamorro 2003), similar to a considerable strengthening of private land use rights adopted elsewhere, e.g. in the context of Mexico's 1992 Constitutional Reforms (World Bank 2002).

However, although all of these reforms have improved individuals' authority over land use, the extent to which land can be transferred, either through rentals or sales, varies considerably. In fact, many transition countries have imposed restrictions on the ability to effect land transfers out of fear that these may have negative impacts on either efficiency or equity. Whether or not such restrictions are appropriate is subject to considerable debate; some researchers have cautioned against premature liberalization of land markets (Lastarria.-Cornhiel 1997, Platteau 1996) or even to warn about outright negative consequences of doing so (Manji 2003). Available empirical evidence to support judgments remains thin, characterized by two main shortcomings.

On the one hand, there is often little distinction between the two types of land transfers. This is of relevance as one would expect land rental and sales markets to respond to market imperfections in rural areas of developing countries in very different ways. It is well known that, in the presence of imperfections in more than one market, enabling households to freely engage in land market transactions
may not contribute to greater productivity but<sup>instead lead to re-concentrationof land. The relativelythin</sup> evidence available, e.g. from Chile (Echenique<sup>andRolando1990)and Honduras(CarterandSalgado</sup> 2001) seems to confirm this although examples<sup>from Paraguay (Carter andGaleano1995)and Guatemala</sup> (Barham _et aL_ 1995) suggest that well-functioning<sup>land marketsmay,in somesituations,also transfer</sup> land to small producers. However, most of<sup>theavailableempiricalevidenceoriginatesfromLatin</sup> America, a continent that is characterized by<sup>high inequality in access to land, a long history of distortions</sup> in agricultural markets, a tradition of weak property<sup>rights,and often significant entry barriersin the rural</sup> non-farm sector (Reardon _et al._ 2001). Many<sup>of theseconditions differnarkedlyfrom EastAsia andin</sup> some cases also Africa where, with<sup>someexceptions,land ownershipismoreegalitarian,population</sup> density is often high, and with lower wages<sup>and higher rates of economic growth, opportunitiesto join the</sup> off-farm sector are more plentiful.' There is general agreement that expansion<sup>of the off-farm economyimpliesnot only greater demands for</sup> land markets but can also be affected by the scope<sup>forsuch markets to function (deJanvry</sup><sup>_et al._2001),</sup> empirical analysis of the factors underlying<sup>theperformanceof land salesand rentalmarkets as wellas</sup> their impact would be of considerable interest.<sup>Twokeyelementswould bethe extenttowhich markets</sup> contribute to equity, i.e. provide land access<sup>tothepoor,theircontributiontogreaterproductive</sup> efficiency, and the existence of potential trade-offs<sup>between these twogoals.Concerning productivityof</sup> land use, data limitations have in the past<sup>often preventedstudies from making clear inferences.</sup> In view of the fact that with development of<sup>the off-farm economy, the scopefor productivity-enhancing</sup> land transfers, and thus the losses associated<sup>withadministrativeprohibitionor malfunctioningof such</sup> markets, are likely to increase significantly, the<sup>lackof empiricalevidenceonthelevelof activityand</sup> productivity impact of land markets is of great<sup>policyrelevance.In this paper,we addressboth of these</sup> issues by providing evidence on the functioning of<sup>land rental and salesmarketsseparately and by using a</sup> measure of households' productive efficiency<sup>for thecase of Vietnam,oneof the fewtransition countries</sup> where, even though land ownership remains<sup>withthe state, both short termrentaland permanenttransfers</sup> of use rights are allowed. Conceptually, and in<sup>linewiththe literature,weassume that land marketsare</sup> driven by three factors, households' agricultural<sup>ability which isunobserved;labor marketimperfections</sup> in the form of supervision constraints; and<sup>capitalmarket imperfections. (Deininger</sup><sup>_etal._2002).</sup> Empirically, a large and nationally representative<sup>panel data setisused toillustrate theevolutionof</sup> markets over time and derive a proper measure<sup>of producers' ability that can be usedto make inferences</sup> on the productivity impact of land markets.

> ' Many of these characteristics also apply<sup>totheAfricancountri4smentionedearlier,althoughpopulationdensityisof courseverylowin</sup> Mozarmbique, in contrast to Ethiopia.

2
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
Iyer 2002).2 It has helped Vietnam to achieve tremendous increases in output and to not only transform itself from a net importer of rice to the world's second largest exporter (Tran 1998) but also to increase its share in a number of agricultural export markets, nalding it one of the fastest growing economies in the world during the 1990s. With a fairly egalitarian land distribution such growth was translated into broad poverty reduction; the poverty headcount dropped from 58% in 1992-1993 to 37% in 1997-1998 (Phong and Glewwe 2002).

> 2.2 Land and other factor markets In rural areas of developing countries

To motivate the separate treatment of land sales and rental markets, we discuss key imperfections in labor and capital markets that affect the behavior of such narkets. We note that, as a result of high risk, imperfect markets for credit and insurance, limited ability to use land as a collateral to obtain credit financing, and non-agricultural demand for land, agricultural sales markets may indeed encourage transfer of land towards uses that may not always be socially optimal. At the same time, even in situations where this is the case, informal exchange or fornal land rental can do much to facilitate temporary land transfers that can significantly increase productive efficiency and equity. Temporary, possibly informal, exchanges of land offer greater flexibility but are also less affected by market imperfections than sales markets. Land transfers, between producers and across generations, are likely to become of greater importance as, with development of the rural economy, greater opportunities for off-farrn employment emerge, a conjecture supported by the important role of land rental in many developing as well as developed countries (de Janvry _et al._ 2001).

In fact, in a world of perfect information and complete markets, with zero transaction costs and constant returns to scale for agricultural production, the ownership distribution of land ownership will affect households' welfare but will not matter for efficiency outcomes, as all producers will adjust to operate an "optimum" farm size through temporary transactions in land or labor markets (Feder 1985). Inperfections in rural _labor_ markets are mainly due to the cost of supervision which arises from the fact that, except in very limited circumstances, a wage workers' true effort is not easily observable. This implies that wage workers will have limited incentives to exert effort and either need to be supervised at a cost<sup>3</sup> or be offered contracts that provide higher incentives. Family members have higher incentives to provide effort than hired labor, implying that it would be advantageous for those who do not have enough land to fully utilize their family labor endowment to rent in land or for those who are relatively land abundant to rent out, rather than engaging in labor market transactions that incur supervision costs. A number of studies have confirmed a negative farm-size productivity relationship for all but the smallest farm size classes

> 2 Refonn of property rights and incentives has been credited with a key role in overall growth not only in a static but also a dynamic sense (Che et _al._ 2001).

> 3 In agricultural production, supervision is particularly difficult or costly due to the spatial dispersion of the production process and **the vagaries** of nature imply a need to constantly adjust to mnicrovariations of the natural environment.

4
(Berry and Cline 1979, Carter 1984, Newell<sup>_et al._1997,Kutcherand Scandizzo1981,Burgess2001,</sup> Udry 1997), or have not been able to reject<sup>thehypothesisof constantreturnstoscaleinagricultural</sup> production (Lanjouw 1995, Feder and et al.<sup>1992,WanandCheng2001,Olinto1995).Labormarket</sup> imperfections would tend to transfer land from<sup>large producerswhowould havetorely on wage labor to</sup> "poor but efficient" small producers whose<sup>familylaborisnotfullyutilizedbycultivating their</sup> endowment. Differences across households in (unobservable)<sup>agriculturalabilitywould addan additional</sup> dimension but not alter the basic relationship.

Credit market imperfections can, however, offset<sup>or eveneliminate supervisioncost advantagesof family</sup> farmers. For example, if there is a need for up-front<sup>workingcapital(e.g.to acquire inputsin addition to</sup> land and labor) and credit markets do not function<sup>well so that access to capitaldepends on initialwealth,</sup> the optimal size of the operational land holding<sup>wouldvary systematicallywith the sizeof landowned</sup> even if land rental markets were to operate perfectly.<sup>This willgiverise to a positiverelationship between</sup> farm size and productivity, as is indeed confirmed<sup>by studiesfrom environmentswhere credit markets are</sup> important, e.g. Sudan (Kevane 1996) or in Malawi<sup>(Dorward1999).</sup> The relative importance of credit market imperfections<sup>varies, however,systematically betweenrental and</sup> sales markets. In rental markets, share contracts<sup>provide scope for overcomingcapital marketimperfections</sup> at relatively low cost (Basu 1992, Otsuka _et_<sup>_aL_1992,Ghatak andPandey2000,RayandSingh 2001)and</sup> the prevalence of share contracts in many<sup>regionsaroundtheworldprovidesevidencethatthe</sup> circumstances under which it is a second<sup>best solutionarerather common.In fact,systematicvariationof</sup> contract parameters depending on tenants'<sup>wealth providesempiricalconfirmationfor this(Quibriaand</sup> Rashid 1986, Shetty 1988, Shaban<sup>1991,LaffontandMatoussi1995).Many studiessupportthe</sup> hypothesis that share tenancy provides a second<sup>best arrangementwhich, inanygivenenvironment,is</sup> difficult to improve upon unless overall<sup>circumstanceschangesothat the operationof factorandcredit</sup> markets improves (Otsuka _et al._ 1992,<sup>Sharmaand Dreze1996,Sadoulet</sup><sup>_et al._1994,Lansink</sup><sup>_et al._2002,</sup> Quisumbing 2001, Otsuka 2002). We therefore<sup>hypothesizethat,whilecredit marketimperfectionswill</sup> affect the nature of contracts adopted, it<sup>will not underminethe tendencyof rental markets to transfer land</sup> to more productive producers.

Contrary to rental markets, sales market<sup>outcomeswillbeaffectedbycreditmarketimperfectionsand</sup> other factors in a number of ways. First,<sup>whereagricultural productionisvery risky and insuranceis not</sup> available, farmers may be forced to sell land<sup>off at low pricesin distresssales(Cain1981,Bidinger</sup><sup>_et al._</sup> 1991, Kranton and Swamy 1999). Covariance<sup>of land pricesmayimplythatthey willbeunableto</sup> replenish their asset portfolio later (Zimmerman<sup>andCarter1999,Binswanger</sup><sup>_et al._1995).Also,to the</sup> extent that land is valued as an asset, in<sup>additionto itsuse as an input into agricultural production,non-</sup> agricultural land demand, (tax and<sup>subsidy)policies,andmacro-economicconditionscanincreaseland</sup> _5_
values over and above the present value of profits from agricultural production for specific groups but not for others (Robison _et al._ 1985, Brandao and Rezende 1992, Gunjal _et al._ 1996), maldng it more difficult for productive farmers to acquire land. Lack of long-term credit can further exacerbate the ability of small and productive farmers to acquire land through the sales market. Land sales markets would be even more constrained from transferring land to producers based solely on considerations of productivity in cases where absence of long-term finance makes it more difficult for the latter to finance such acquisition. All of this leads us to expect that rental markets will be more able than sales markets to transfer land to more productive producers. We therefore expect sales and rental markets to have quite different outcomes, although the extent to which more productive producers will have access to greater amounts of land and to which credit market imperfections will affect market outcomes remains an empirical question.

# 2.3 Conceptual model

To formalize this, we first consider land rental markets and then add some of the additional factors that have to be taken into account for land sales. Let household i be endowed with fixed amounts of labor _(L,)_ and land (Ai), and a given level of agricultural ability (a,). Relative land abundance is assumed to make farming based on hired labor infeasible and households can allocate their labor endowment between farming their own land and off-farm employment at an exogenous wage _(w,)._ Renting incurs transaction costs _(7)_ proportional to the amount of land transferred and we assume that working capital is not binding. With this, household i will choose P', _1°_<sup>_0_</sup> _as_ well as _A *_ by solving the maximization problem: _la, Apa;f(l;a ,A;) +wlio - Ih (Ai ;1j)(r +T) +Iou'(;! - A )(r T)_ ) where p is the price of agricultural goods, P is the amount of time allocated to off-farm labor (= L, - _I,a_ , _I"'_ is an indicator for rent-in (=1 for rent-in, and 0 otherwise), similarly _IP'_ is an indicator for rent-out (=1 for rent-out, and 0 otherwise), and all other variables in (a) are as defined above. The optimal choices of _i;a, ijt_ and _A;_ will solve the first order conditions (FOC) of problem (P), i.e.

||_pa 1f,,(I, Ai)= w _|(1)|
|---|---|---|
|plus,for householdswhorentin,|_pa,fA(li°,A,)= r _+_T_|(2)|
|orforhouseholds whorentout,|_paJf,(l1a,Ai)= r _- _T_|(2)'|
|andfor autarkichouseholds,|_r_- _T_<_pa,f4(i;_,_Ai)< r _+_T_|(2)"|

6
The first order conditions allow to derive three empirically testable propositions (see the appendix for a more detailed derivation) as follows: _Proposition 1._ The amount of land rented in is strictly increasing in ability, c, and strictly decreasing in their land endowment _A_ . Rental markets will thus transfer land to "poor but efficient" producers.

_Proposition 2._ Transaction costs drive a wedge between those renting in and those renting out with any increase in T decreasing a, and increasing a,, thereby expanding the range of producers who remain<sup>in</sup> autarky, reducing the number of households who participate in rental markets, as well as the amount of land transacted through rental markets. Reduction in transaction cost will increase social welfare.

_Proposition 3._ Increases of the wage for off-farm employment will increase the amount of land transacted in rental markets and overall welfare. This will be associated with a decrease in the equilibrium rental rate and, in a risk-free environment, will make everybody better off.

As discussed in more detail below, we use an estimate of producers' agricultural ability to test proposition one; the level to which long-term and secure land rights are available at the community level, for proposition two; and the level of off-farm development at the village level as well as households' nonfarm employment history for proposition three.

For land sales markets, we follow the literature on inter-temporal asset accumulation which implies that household i's choice of consumption, land accumulation and saving each period together solve<sup>lifetime</sup> utility maximization: where _U(c, )_ is one period utility function, c, is the level of consumption, 6is the rate of time preference, A, is amount of land owned in time t, _S,_ is amount of saving in time t, _Y, (A,)_ is the amount of income household i generate in time t which itself is a function of the land household i owns in that period (assume household self-cultivates all the land endowment). (3b) is a form of borrowing constraints, restricting the end stock of tradable assets to be nonnegative in each period.

If income is stochastic, an analytical solution to this problem can not be derived (Zeldes<sup>1989)andthe</sup> literature has resorted to simulation to obtain solutions under general assumptions (Deaton<sup>1991,</sup> Zeldes 1989, Rosenzweig and Wolpin 1993, Carter and Zimmerman 2000). We note that if land rights are<sup>secure</sup>

**_7_**
in the long term and (long-term) rental as well as credit markets function well (allowing, in particular, the use of future rental income as a collateral), no land sales markets would be needed as all the outcomes from such markets could be accomnplished by long-term rentals. With secure land rights but credit market imperfections, the only reason to sell land would be as response to a shock that threatens<sup>topush</sup> consumption below the minimum needed for survival. We would therefore predict that land sales, as compared to rentals, would be undertaken only by households who experienced critical shocks and who are unable to borrow against their land because the financial infrastructure is incomplete. Purchase of land will, in such an environment, require higher levels of wealth or access to credit markets. Thus, whether or not a household experience shocks, as well as credit market access and initial wealth are thus variables that are unlikely to affect rental markets but would be predicted to have a significant impact on land sales and purchases.

# 2.4 Estmation strategy

To obtain an estimate of households' agricultural ability, we use the fact that we have a panel of households to estimate a production function with household fixed effects. Let technology be represented by the Cobb-Douglas production function where Qv is agricultural output produced by household i in village j in year t; _AVb Lu,_ and K,f are the land, labor and capital used to produce this output Q, with technical coefficients _0,,_<sup>**_02,_**</sup> and<sup>_60,_</sup> and _exp( aj)._ is the efficiency parameter which consists of a household-and a village-specific element reflecting access to infrastructure and mnarkets, soil quality, climate, etc. Taking logs of both sides of equation (1) and adding a time trend and an iid error term, and letting = a _a_ we obtain an estimable equation for production by household i in villagej at time t as follows.

**_qu, = au + Olay, + 66 lut_ + 6B3** _kg, + ot + e,), (5)_

where lower case letters refer to the logarithm of the quantities referred to above. Availability of multiple observations per household in the panel allows us to estimate this equation using household fixed effects.

_qVt- ivy =_ oi,- _,_ + _6(Zu,-ZV)_ + _o(t-t)_ + **_*j_** (6' where Z^, is a vector consisting of a, _l,_ k and 8 is a coefficiem vector. In addition to land<sup>4</sup> and household composition to proxy for labor use,<sup>5</sup> Z, includes chemical fertilizer, organic manure, pesticides, and seeds. Fixed capital is the value of all assets related to crop production. As no values were given for draft

> _4_ To control for land quality, we include the share of irrigated land in total **crop** land in the regression.

> 5 Unfortunately, the survey does not provide detailed infornation on labor use in agricultural<sup>production, forcingus tousefamilycomposition</sup> instead.

S
animals, we include a dummy indicating whether the household owned a draft animal or not. Estimation of equation (6) allows us to recover the composite efficiency parameter %4. As this variable still includes unobservable characteristics at the village level, we apply a similar procedure at the village level to obtain cs the subtraction of which from _aV_ provides an esfimate ofc, the pure idiosyncratic effect for each producer in the sample.

As discussed earlier, a household's decision to enter land rental markets depends on its agricultural ability, the size of its land endowment, the off-farm opportunities available, and the size of transaction costs associated with market participation. Given that the incidence of land mnarket activity in 1993 was still very limited, and not all of the right hand side variables were available for the first period, we estimate rental and sales market participation for the 1998 cross section. Formally we estimate the following equation for rental market participation using probit and tobit models for either a participation dummy or area rented

# _R, = Po + ,a + 2 A, + P3X, ++fi 5 1 C +/36T, + ,5, + e_

where Ri is a dummy for participation in rental or markets or the area rented in or out, respectively, or is agricultural ability, derived as described above, _A,_ is the household's per capita land endowment, Xi is a vector of household characteristics including age, sex, the head's education, other asset endowments, and initial per capita expenditure to proxy for poverty. Two other household-specific vectors or variables, _0,_ and _S,,_ indicate whether the household had past off-farm or migration experience and the level of local off-farm development _(0)_ and whether the household experienced one or more shocks in the 5-year period preceding the survey (SI). Finally, _T,_ denotes the share of producers (excluding the one under concern) who have been awarded written long-term use rights to proxy for lower transaction costs of land market participation. To approximate the ability to access credit markets, _C,_ indicates the share of other producers in the village who reported having access to formal credit, a measure that is similarly constructed as _T,._ The prediction that land (rental) markets would transfer land to more productive producers with lower endowments (proposition one) leads us to expect that 6,,> 0 and **_/2_** < O in the equation for renting in and opposite signs in the equation for renting out. While a positive or negative sign for renting in or out, respectively, on the element of 33 corresponding to agricultural assets would point towards imperfections in markets for these assets, the sign on other assets in the rental equation is indeterminate a priori. From proposition two, we expect that /36 be positive both in the renting in and the renting out equations, i.e. that better definition of property rights over land will increase both supply to rental markets and demand for such transfers. At the same time, we expect ,/7, the coefficient on whether or not a household experienced a shock, to be insignificant and do not have a strong prior regarding credit access. Based on proposition 9
three, we expect households whose past experience in off-farm<sup>labormarketsreflectsgreater</sup> opportunities for such employment to be less likely to rent in and<sup>morelikely to rent out andthe levelof</sup> rental market activity in general to increase with development of the<sup>off-farmeconomy in a community as</sup> measured by the share of income derived from non-agricultural sources.

The equation to be estimated for participation in land sales<sup>marketsissimilar,withthe onlydifference</sup> being that the dependent variable now refers to land purchases<sup>duringthe5-yearperiodprecedingthe</sup> survey and that a number of the dependent variables refer to initial<sup>conditions rather than,as in the case of</sup> rental markets, contemporaneous ones. Formally, we estimate _Pi = o + ,,ai + 2 Ai + 3f Xi +fl4O, +f 5 C, + 6Ti + PA + ASIC + e 1 (7)_ where Pi is a dummy for participation in sale or purchase markets<sup>or the area involved,respectively,a, is</sup> agricultural ability, Ai is the household's initial (1993) per capita<sup>land endowment,</sup><sup>_Xi_is a vector of initial</sup> household characteristics including age, sex, the head's education,<sup>initialassetendowment, andinitial</sup> consumption. The remaining variables, _0,, Si, T,_ and C, are defined<sup>as above and the onlydifferenceis that</sup> we add a interaction between Si and Cl. The rationale for doing<sup>soisthat,asdiscussed above,in</sup> environments where credit markets do not function well, distress<sup>salescould be a mainsourceof supply</sup> of land to the sales market, something that can be tested by including<sup>this interaction.</sup> Recall from our earlier discussion that we expect that initial wealth<sup>is moreimportant asa determinantof</sup> land purchases than rentals. Second, even though we would expect<sup>households' abilityto increasetheir</sup> demand for cultivable land, the variable would be less important<sup>insales markets.Thus,althoughwe</sup> would still expect ,B> 0 and _f13_ **<** 0 in the purchase equation<sup>andoppositein thesalesequation,the</sup> magnitude and significance of the coefficients is expected to be lower<sup>in thelatterwherewe alsoexpect</sup> agricultural assets to be of greater importance. In addition to<sup>continuingimportanceof bothtransaction</sup> costs and off-farm labor market opportunities, we also expect<sup>that permanent land transactionsboth credit</sup> market access and having experienced a shocks in the past will<sup>beimportant.With presenceof financing</sup> constraints, we expect availability of credit to increase households'<sup>propensitytopurchase land.At the</sup> same time shocks, especially in environments where credit markets<sup>arethin,mayforcehouseholdsto</sup> undertake distress sales, thus having a positive impact on land sales<sup>but not on land purchases.</sup> 3. 1Data sources and descriptive evidence Before discussing econometric results, we highlight some salient<sup>featuresof Vietnam'srural economyby</sup> presenting evidence on socio-economic characteristics and changes<sup>inlandmarketparticipationover</sup> time. The data illustrate the considerable reduction of poverty<sup>achievedthroughhigh levelsof recent</sup> economic growth and off-farm development but also a point towards<sup>considerable,thoughregionally</sup> differentiated, increase in land market activity.

**I0**
# 3.1. Socio-economic characteristics

The data used in the analysis come from the 1992/93 and 1998 rounds of Vietnam's Living Standards Surveys (VLSS) which included 4,800 and 6,000 households, respectively. The survey was conducted by Vietnam's General Statistical Office and the sample stratified into 7 administrative<sup>areaswhich wegroup</sup> into four major regions. Our analysis focuses on the 2825 households included in the rural panel of<sup>the</sup> VLSS who were interviewed in both 1992/3 and 1998. Table I reports descriptive statistics for the whole country in 1993 and 1998 and the four main regions in 1998.6 We note that the size of an<sup>average</sup> household ranged from 4 to 5 persons, about 3 in the 14 to 60 age category and 0.5 above 60, and the<sup>age</sup> of household heads about 44 in 1993. About 20% of households, ranging from 17% to 30% depending<sup>on</sup> the region, were headed by a female. Levels of formal education increased considerably, from 4 years in 1993 to 6.8 years in 1998. About 10% of households experienced loss of one or more adult family members during the 1993 to 1997 period.!

Survey results point towards an average annual increase of per capita expenditure<sup>of 5.9%over the1993-</sup> 1998 period, from 1.69 Mn. Dong to 2.26 Mn. Dong. While per capita income in<sup>1998isalmost equalto</sup> per capita expenditure, the large gap between the two in 1993 is likely to be attributable to measurement error, i.e. underreporting of income in the first period. Despite this increase, and a highly egalitarian distribution of per capita expenditure, which is characterized by a Gini coefficient of 0.26, the rural economy is still quite poor, with per capita income amounting to between US$153.46 (in the Northern Uplands) to US$ 245.45 (in the South).

The rapid pace of off-farm development is illustrated by the marked increase in migration visible<sup>in table</sup> 1. While the share of household heads who had migration experience increased from 11% in 1993 to<sup>15%</sup> in 1998, the next generation seems to have benefited most from the increase in off-farm employment. The share of households who had at least one member with an off-farm job increased from 30% to 55% between the two periods and the incidence of migration by household members accelerated from 29% in 1993 to 64% in 1998. The level of migration differs across regions, with only<sup>56% of householdshaving</sup> a migrating member in the Red River Delta and North Central, as compared to 75% in the Southeast and Mekong Delta. However, the increase in the share of households who, since<sup>1993,havehadat leastone</sup> member migrate was fairly uniform across the four regions, implying that the variation observed is<sup>due to</sup> pre-existing differences rather than a differential evolution (and a failure of some regions to<sup>benefitfrom</sup> off-farm employment).

> 6 In the descriptive table and also for all the econometric regressions,<sup>wedividethe2824householdsinto4regionsbasedontheoriginal7</sup> administrative regions. Regionl include the 546 households from Northem<sup>Uplandsadministrativeregion.Region2includesthe1326</sup> households from Red River Delta and North Central. Region 3 includes<sup>the 298 householdsfrom originalCentralCoastregion.Finally Region 4</sup> includes the 650 households from Southeast region and Mekong River Delta region.

> 7 We focus on adults, defined as being above the age of 13 years, because<sup>in thesecases, deathsimply theloss of a significant amountof family</sup> labor, the need to incur expenses for burials, and possibly also the necessity of distnbuting<sup>land holdings among heirs.Any of thesewill seriously</sup> reduce the household's productive capacity.

II
The high level of non-farm activity notwithstanding, agriculture and crop production remain the main sources of income for rural households even though their share has decreased from 83% to 78% or 70% to 66% for agricultural and crop income, respectively. This implies that the level of endowments, as well as the scope for exchanging land endowments through formal and informal means, continue to be of great importance for overall livelihood. In this context, we note that per capita land endowments remain small (0.3 ha of annual and 0.06 ha of perennial crops on average), though somewhat variable across regions. They are largest in the South where the per capita endowment is more than I ha (0.85 ha of annuals and 0,23 ha of perennials) and smallest in the Red River Delta (0.26 ha of annuals and 0.02 ha of perennials). We also note that land was quite equitably distributed, with a Gini coefficient of per capita land endowments ranging between 0.34 to 0.37 except for Southeast & Mekong Delta where the Gini coefficient is 0.51 as compared to 0.26 for per capita expenditure. At the same time, we note that there was no significant increase in land inequality during the period under concern; in fact the Gini coefficient for per capita land endowments is estimated to have declined slightly, from 0.53 to 0.50.

Table I also highlights that there has been a large increase in the share of land held under long-term use rights, a share that increased from 25% in 1993 to 88% in 1998. Given that in all the regions except the South (where 65% of land were held under long-term rights in 1993), the share of land held under long term use rights was one fifth or less of the total, this points towards a considerable admninistrative effort at documenting and increasing the security of land rights.<sup>8</sup> The inter-regional variation in broad levels of development noted earlier is reflected in differences of overall asset endowments, computed as the sum of housing, enterprise, and business assets (agricultural and non-agricultural but excluding land). In line with what is observed in many developing countries, housing constitutes rural households' main asset while enterprise asset make up only between 6% and 13% of the total. Asset endowments are highest in the South. Our data also indicate that access to formal credit remains limited; while the share of producers reporting to have had access to such credit increased from 9% to 21% between 1993 and 1998, being above one third of the total in the South and Central Coast but relatively low in other regions.<sup>9</sup> 3.2 Lamd market partcicpation Descriptive evidence 'on land market participation in both periods as reported in Table 2 points towards a rapid increase in land transactions, together with considerable differences across regions. Rental market participation more than quadrupled from 3.8% in 1993 to 15.8% in 1998. Interestingly, within rental markets, the lion's share of land, almost half in each period, is obtained for free (1.7% in 1993 and 7.2% in 1998), followed by fixed rent (1.7% and 6.2%, respectively) and sharecropping arrangements (0.4%

> a Although the region-wise, about 88 percent of annual land ame entitled with long-tern use, but village-wise, some 20 percent villages (21 out of

> 220) only have less than 60 percent of annual land within village are entitled with long-term land use.

> 9 Note that in the regressions reported below we use the share of households in a given villaSe (excluding the household under concern) who have

> access to credit as the right hand side variable to avoid endogeneity.

12
and 2.4%). While the share of households who report to have transferred out land is, with 0.8% in<sup>1993</sup> and 5.8% in 1998, much lower, probably due to the fact that some of the absentee landlords are not accounted for, it illustrates a similarly strong increase in overall rental market activity.

The increase in land sales transactions was even more pronounced, from a mere 1% of producers who bought land in the 5-year period prior to the survey in 1993 to 7.2% (equivalent to an annual turnover of almost 1.5%) in 1998. Descriptive data also point towards marked differences, both in overall participation and in the relative weight of different modalities of land transfer, across regions. Even though rental is quantitatively more important than sales everywhere, the share of producers who purchased land is high in the Northern Uplands and the South and Mekong Delta, although purchases<sup>are</sup> virtually non-existent in the Central Coast. Also, in all cases, fixed rent is more important than share cropping but in all regions except the Central Coast and the South, free informal transfers of land are more important than cash rental. Clearly, econometric analysis of the factors underlying these outcomes, as well as their likely impact, will be of great interest.

## 4. Econometric evidence

We report results from rental and sales equations separately and refer to the appendix for production function estimation used to derive households' agricultural ability. The key finding is that demand for renting in and purchase is driven by higher levels of productivity and lower land endowments. At the same time, and as predicted, more secure land rights reduce transaction costs and help activate rental and sales markets. Access to credit and asset endowments are important mainly for land purchases but not for renting in. Regarding supply to rental markets, off-farm experience and non-agricultural assets emerge as key variables in the renting out equation where the land endowment is of marginal significance and ability is insignificant. In the sales equation, land endowments and productivity are significant and of the predicted sign. Furthermore, we find that being affected by a shock, and credit access, has a significant impact on land sales markets.

# 4.1. Land rental markets

Table 3 presents results for rental market participation, both on the demand and the supply side. The positive and statistically significant coefficients of agricultural ability in the basic models of rent-in participation equation (columns I and 3 of table 3) indicates that rentals transfer land to households with high level of agricultural ability. To illustrate, the most efficient producer in the sample (c=3.28) has a more than 20% higher probability of obtaining additional land through rental than the least efficient (a2.29), other things constant. This suggests that, as expected, land rental markets indeed transfer resources to those producers who are able to make more productive use of them.

_13_
In addition to the positive impact on efficiency, we also note that land rental markets have a positive impact on equity by transferring land to those with more limited endowments. This is illustrated by the fact that the coefficient on land endowment is negative and highly significant; in line with the negative, though insignificant, coefficient on initial per capita expenditure. At the same time, the positive coefficient on possession of draft animals, together with the marginally significant on agricultural assets (at 10%) point towards some imperfections in markets for animals and capital equipment. However, noting that the coefficient on total (non-land) assets is insignificant allows us to conclude that rental markets have a positive overall impact on equity. This is reinforced by the fact that the regression leads us to reject the hypothesis that female-headed households were disadvantaged in access to land rental opportunities and that those who experienced a shock were not more likely to engage in land rental activity.

We also note that rental markets tend to transfer land to producers in the most productive age; the tendency to rent in land increases, though only weakly, up to a maximum of 48 years. Households with access to remittances are slightly less likely to rent in land, although the coefficient is significant only at 10%. Village level variables illustrate that higher security of tenure in the form of land use certificates is highly significant in increasing the demand for renting in. Having all the land in the village under longterm use rights is estimated to increase the propensity to rent in land by almost 12 percentage points, thus highlighting the need for a minimum level of tenure security as one of the institutional pre-conditions for rental markets to emerge. However, rental activity is higher rather than lower in villages that depend more heavily on agriculture, as proxied by the mean share of income from agriculture.

As descriptive statistics pointed towards marked differences across regions, we specify a second model where the level of ability is interacted with regional dummies. Results, reported in column 2 of table 3, confirm that there are significant differences in the extent to which rental markets contribute to greater productive efficiency; point estimates for the respective parameter are 0.15 and 0.14 in regions I and 3, respectively, while being much smaller (0.03) in region 2 and insignificant in region 4. Other coefficients are not affected. We note that the general conclusions are consistent with evidence from the tobit model which is available upon request, and will return to discuss the regionally differentiated result for below, jointly with the evidence for sales markets.

On the supply side to the rental market, we find that the sign on ability is insignificant and the sign on land endowments negative and significant at the 10% level, implying that neither low agricultural ability nor large land endowments provide a strong motivation for households to rent out land. In fact, the positive and significant signs on total assets, past off farm experience, and the share of households with credit access in the village all suggest that opportunities for off-farm employment are the driving force behind supply of land to the rental market, a notion that is supported by the negative and significant sign 14
of the coefficient on agricultural<sup>assets. Thesignificantsign of long-termuse rights (at 10%)implies that</sup> better definition of land rights<sup>increasesnot only demand forland rentalas seen earlier, but also servesto</sup> augment supply of land to the<sup>market. Regionaldisaggregationof theefficiency parameter supportsthe</sup> conclusion that low efficiency<sup>isnota major reasonforhouseholdsto supplylandtotherentalmarket</sup> while confirming that greater<sup>involvementin off-farm activities,smaller householdsize,and better access</sup> to credit at the village level,<sup>increasesupplyof land to rental markets..</sup>

# **4.2.** Land **sales markets**

Regression results for households'<sup>participationin land salesmarkets,paralleltothe evidencefor rental,</sup> are reported in table 4. We note<sup>thatit is more productiveproducerswho have, during thelast5years,</sup> been able to acquire land through<sup>land purchase.This, togetherwith the fact that larger householdswith</sup> more limited initial land endowments<sup>have beenabletoaccesssuch markets,similarto what was</sup> observed in rental markets,<sup>suggests that, in thecaseof Vietnam,creditmarketimperfectionshave not</sup> been strong enough to overcome<sup>efficiencyadvantages.'"</sup> This does not imply that credit<sup>marketswould beirrelevant;to thecontrary,thefactthattheinitial</sup> endowment with assets, but<sup>not the levelof agriculturalassets,is highlysignificant,suggeststhatcredit</sup> market imperfections affect<sup>demandfor land through salesbut not through rentalmarkets.Interestingly,</sup> the share of households with<sup>accessto creditin thevillage is highlysignificantas well, lendingfurther</sup> support to the hypothesis that<sup>activityin landsalesmarketswillbemorepronouncedif credit markets</sup> function well.

A further parallel to the land rental<sup>marketsis thehigh significanceof well-defined land rights(i.e.long-</sup> term use contracts) as a determinant<sup>of landsales market activity.Regional disaggregation,on theother</sup> hand, suggests that more efficient<sup>producersaccesslandthroughrentalandsalesmarketsonlyinthe</sup> Northern Uplands while sales markets<sup>arethe mechanism of choicein the Southand rental marketsin the</sup> Central Coast. While the longer<sup>historyof private land rightsintheSouthmaybeonereasonfor</sup> households preferring sales rather<sup>thanrentalmarketstoadjust,furtherstudyof thisissuewould beof</sup> interest.

As one of the principal concerns<sup>againstland salesmarketsisthatunfetteredoperationof suchmarkets</sup> would lead poor and marginal producers<sup>to part withtheir land,resultsfrom the landsupply equationare</sup> of particular interest. Contrary<sup>to ourexpectations,theregressions (columns3and 4 of table 4)suggest</sup> that less productive producers with<sup>high levelsof endowment andlower levelsof agriculturalassetstend</sup> to sell their land. In fact, the positive<sup>and significant coefficienton initial percapitaexpenditureandthe</sup>

> " This conclusion is supported<sup>by thefact that the magnitude of the coefficients for sales is not significantly different fromthosein rentalmarkets.</sup>

_15_
lack of significance of asset endowments and other wealth-indicators suggests that land sales are not concentrated among the poor.

At the same time, the fact that the coefficient on the shock variable is positive and significant does suggest that households who are affected by an unexpected shock in the form of death of a member may have to resort to selling land as an adjustment strategy. In the augmented model, the interaction between having experienced a shock and credit access at the village level is negative, suggesting that better access to credit allows those hit by a shock to use credit markets, rather than land sales, to smooth consumption. While more detailed investigation of the impact of deaths on households' survival strategies as well as the coping strategies open to them, would be desirable, our results support the hypothesis that, unless households have mechanisms other than land sales, in particular credit markets, to cope with shocks, one can not exclude the scope for land sales markets to lead to undesirable outcomes.

# 5. Conclusion and poUlcy hIplcations

Our study was motivated by the fact that, even though many transition countries have taken far-reaching measures to establish individual land rights, explicit or implicit restrictions on the functioning of land markets remain widespread. Such restrictions are often motivated by fears that unmitigated operation of land markets may negatively affect equity and possibly efficiency even though the applicable evidence originates mainly from non-transition countries with considerably different structural characteristics. The empirical analysis for Vietnam, which builds on a framework where ability, the level of local non-farm development, and secure land rights and other public goods drive the operation of land rental and sales and rental markets, allows us to contribute to the literature in three respects: First, we find that both rental and sales markets have an unambiguously positive impact on productivity and provide opportunities for households with higher levels of ability to access land. Together with evidence that these markets have allowed producers with smaller (initial) endowments to gain access to more land, this suggests that, in Vietnam, barriers preventing access to land markets are low. A relatively egalitarian land ownership distribution and rapid growth of off-farm opportunities are likely to partly underlie this result.

Second, we find that non-agricultural development is indeed a major factor in the development of land rental markets. Off-farm employment is not only a key reason for households to supply land to rental markets; the increase in such opportunities during the last 5 years can also go a long way towards explaining the observed surge in rental activity (from less than 4% in 1993 to almost 16% in 1998). We find no evidence to support the hypothesis that credit market imperfections would lead poor but efficient producers to part with their land; to the contrary it is larger land owners with lower levels of agricultural productivity who are offering land on the sales market. At the same time, the fact that households who 16
recently experienced a shock are more likely to sell land, especially in environments<sup>wherecredit access</sup> is limited, implies that, unless other mechanisms for consumption smoothing<sup>are</sup> available,<sup>there remains</sup> a danger of distress sales that needs to be accounted for if designing policy interventions.

Finally, government policy has an important impact on land market operation in at least<sup>two respects. On</sup> the one hand, a variable that is consistently significant in all regressions of market participation<sup>is the</sup> security of property rights. This supports the hypothesis that provision of clear, enforceable,<sup>and secure</sup> long-term land rights, even if they may fall far short of full ownership rights, is an essential<sup>pre-condition</sup> for the operation of land rental and sales markets. On the other hand, access to<sup>creditisimportantto</sup> prevent distress sales by households who, without such access, would be unable<sup>to smooth consumption</sup> in the face of adverse shocks.

These findings are likely to be of relevance for other transition economies as well as<sup>for the studyof the</sup> functioning of land markets in more general terms. Regarding the first, the example of<sup>Vietnam illustrates</sup> that, in transition economnies where, because initial land endowments were distributed<sup>in anegalitarian</sup> fashion irrespective of individual ability, the scope for increasing allocative efficiency<sup>andhousehold</sup> welfare through adjustments in operational holding sizes is likely to be large. At<sup>thesame time, evidence</sup> from Eastern European transition countries suggests that failure to clarify land rights<sup>ortomake</sup> households aware of their rights and enable them to enforce such rights at low cost has,<sup>in an environment</sup> characterized by the asymmetric access to information, capital, and legal means of<sup>enforcementthatis</sup> often typical of transition economies, led to land re-concentration with<sup>undesirablesocial andeconomic</sup> consequences (Csaki _et al._ 2002). While this suggests that "premature" introduction<sup>of marketsina</sup> context where land rights are not well-defined or can not be enforced can<sup>have negativeconsequences,the</sup> example of Vietnam highlights that it is not the functioning of markets<sup>_per se_but ratherthebroader</sup> conditions under which such markets operate which can give rise to undesirable<sup>outcomes.Moreresearch</sup> on the necessary pre-conditions, in terms of land rights and the development<sup>of othermarkets,for</sup> efficiency-enhancing land transfers to take place and the differential roles<sup>performedby land rentaland</sup> land sales markets in the context of transition economies could improve<sup>understandingandthe abilityto</sup> provide policy advice on this issue.

For the study of land markets in general, our findings imply that restrictions<sup>on the functioningof land</sup> rental which continue to remain in place in a number of countries are difficult<sup>to justify.Giventhatthey</sup> may be difficult to enforce and associated with considerable losses<sup>intermsof efficiencyaswellas</sup> equity, it may be more desirable for policy to try and harness potential of markets through<sup>interventions</sup> that improve the framework for markets to operation. At the same time, the fact that absence<sup>of</sup> mechanisms for consumption smoothing may, in the presence of shocks,<sup>leadtodistresssaleswith</sup> possibly undesirable consequences, suggests that more in-depth evidence on<sup>the interactions betweenland</sup> 17
and credit markets and the long-term impact of land rental as compared to sales markets on (agricultural and non-agricultural) investment, household welfare, and productivity in settings with multiple market imperfections will be of interest. Transition economies such as Vietnum, which, in addition to large interregional variation, are also characterized by significant dynamics in land markets, could provide empirical evidence for such research which, by including an assessment of interactions between land markets and non-agricultural investments, could generate insights on the role and contribution of land markets in the broader context of rural economic development.

**l8**
**Table 1. Household Cbarateristics**

||Sample<br>1993|Sample<br>1998|NUplands|RedRiverDelta<br>&NorthCenter|Coastal<br>Central|Southeast&<br>Mekong Delta|
|---|---|---|---|---|---|---|
|BasichouseholdcharacterLstics|||||||
|Sizeofhousehold|5.12|4.86|5.23|4.42|5.04|5.34|
|Members youngerthan14years|2.00|1.64|1.97|1.51|1.69|1.62|
|Member14-60yearsold|2.74|2.78'|2.87|2.48|2.91|3.25|
|Members older than60|0.38|0.43|0.39|0.43|0.45|0.47|
|Ageofhead|44.51|47.32|43.53|47.20|50.16|49.44|
|Educationofhead(years)|4.03<br>|6.84|7.28|8.10|5.27|4.73|
|Female headed|20<sup>0</sup>%|21%|17%|22%|30%|21%|
|Lostoneormoreadultmembers||10.1%|9.8%|8.3%|14.4%|12.1%|
|IncomeandItscomposition|||||||
|Percapitaexpenditure(MnDong)1993|1.69||1.39|1.61|1.80|2.08|
|Percapitaexpenditure(Mn Dong)1998||2.26|1.77|2.29|2.28|2.58|
|Giniofpercapitaexpenditure|0.263|0.258|0.234|0.251|0.244|0.256|
|Percapitaincome (Mn.Dong)|1.25|2.30|2.03|2.01|2.01|3.23|
|Shareofincomefromagriculture|83%|78%|87%|75%|77%|77%|
|Shareofincomefromcrop production|70%|66%|70%|62%|62%|70%|
|Headwithoff-farmjobexperience|8%|12%|9%|14%|14%|8%|
|Head withmigrationexperience1993|11%||11%|11%|14%|9%|
|Head withmigrationexperience1998||15%|13%|16%|18%|15%|
|Familywithoff-flirmjobexperience|30%|55%|59%|48%|57%|64%|
|Familywithmigrationexperience1993|29%||25%|23%|37%|43%|
|Familywithmigrationexperience1998||64%|66%|56%|67%|75%|
|Shareofremittancesinincome|2%|4%|2%|6%|5%|3%|
|Landendowment<br>|||||||
|Areaofannualland(m<sup>2</sup>)|2983.16|4320.35|3801.10|2635.07|3522.40|8527.96|
|Areaofperennial land(ri<sup>2</sup>)|600.24|780.28|548.95|212.31|475.06|2261.79|
|Landwithlongtermtitle1993|25%||20%|9%|14%|65%|
|Landwith long termtitle1998||88%|91%|84%|97%|91%|
|Shareoflandless|4%|2%|0%|3%|0%|2%|
|Giniofthepercapita landdistribution<br>Assetendowments|0.534|0.499|0.343|0.373|0.376|0.515|
|Valueoftotalassets(Mn.Dong)|10.63|30.35|25.23|31.27|24.73|35.33|
|Shareofhouse|76%|77%|79%|81%|63%|72%|
|Shareofenterpriseassets(agric.&industry)|9%|8%|7°/O|6%|13%|9%|
|Householdswfornalcredit access1993|9%||8%|10%|13%|8%|
|Householdswformalcreditaccess1998||21%|10%|17%|35%|33%|
|Observations|2825|2825|546|1326|298|655|

Source: Own computation from 1998 VLSS 'The average exchange rate between US dollar and Vietnamese Dong in 1997/1998 is USS I 13091 Vietnamese Dong 19
Table 2: Land market partcIdpaton In **1993** and **1998**

||Total Sample|NUplands|RedRiverDelta<br>aNorthCentral|Coast Central|Southest&<br>MekongDelta|
|---|---|---|---|---|---|
||||1993|||
|Rented in land|3.80%|7.20%|2.60%|1.30%|4.80%|
|Fixedrent|1.70%|2.40%|1.10%|0.30%|2.90%|
|Sharecropping|0.40%|0.20%|0.50%|0.00%|0.80%|
|Free|1.70%|4.60%|1.00%|1.00%|1.10<sup>0</sup>%|
|Boughtland|1.00%|0.70%|0.50%|0.00%|2.90%/o|
|Rentedout**land**|0.53%|0.20%|0.60%|0.30%|0.80%|
|Fixedrent|0.20%|0.20%|0.20%|0.00%|0.30%|
|**Share**cropping|0.03%|0.00%|0.00%|0.00%|0.20%|
|Free|0.30%|0.00%|0.40%|0.30%|0.30%|
|Sold land|0.30%|0.40%|0.00%|0.00%|1.10%|
||||1998|||
|Rentedinland|15.80%|11.00%|22.70%|8.00%|9.40%|
|Fixedrent|6.20%|2.20%|7.90%|6.40%|6.10%|
|Sharecropping|2.40%|2.00%|3.70%|0.30%|0.90%|
|Free|7.20%|6.80%|11.10%|1.30%|2.40%|
|Boughtland|7.20%|9.50%|6.10%|0.70%|10.50%|
|Rentedoutland|4.10%|2.00%|5.30%|5.00%|3.70%|
|Fixedrent|1.20%|0.20%|1.40%|1.00%|2.10%|
|Sharecropping|0.60%|0.20%|1.10%|0.00%|0.20%|
|Free|2.30%|1.60%|2.80%|4.00%|1.40%|
|Soldland|1.70%|2.00%|0.20%|0.00%|5.00%|
|Observations|2825|546|1326|298|655|

20
Table 3. Probit Results for Land Rental Market Partidipation

||Renti<br>|ng**In**<br>|Rent<br>|ingout<br>|
|---|---|---|---|---|
||BasicModel|AugmeentedModel|BasicModel<br>|AugmentedModel|
|Agriculturmlability|0.039***<br>||0.003<br>||
||(3.56)||(0.45)||
|Agriculutralability*Regionl||0.142***<br>||0.051*<br>177|
|||(3.22)<br>||(.)<br>*|
|Agriculutralability*Region2||0.034**<br>||-0.017<br>|
|||(2.32)<br>||(1.66)<br>|
|Agriculutralability*Region3||0.153***<br>||0.037*<br>|
|||(3.64)<br>||(2.22)<br>|
|Agriculutralability*Region4||0.002<br>||0.012<br>107|
|||(0.13)||(.)<br>|
|P.c.landendowment(log)|-0.010***<br>|-0.010***<br>|-0.003*<br>|-0.003*<br>|
||(4.30)<br>|(4.45)<br>|(1.75)<br>|(1.69)<br>|
|Valueofagriculturalassets|0.004*<br>|0.004**<br>|-0.003**<br>|-0.003***<br>|
||(1.83)|(2.06)<br>|(2.57)<br>|(2.73)<br>|
|Valueoftotal assets|-0.001<br>|-0.002<br>|0.003*0<br>|0.003**<br>|
||(0.47)<br>**|(0.83)<br>**|(2.15)<br>|(2.01)<br>0010|
|Draftanimal|0.022<br>|0.022<br>|-0.011<br>|-.<br>|
||(2.18)<br>|(2.43)<br>|(1.62)<br>|(1.51)<br>|
|P.c.expenditure1993(log)|-0.009<br>|-0.011<br>|0.002<br>|0.000<br>|
||(109)<br>|(1.44)<br>|(0.23)<br>|(0.06)<br>|
|Logofhouseholdsize|-0.003<br>|-0.003<br>|-0.0170*<br>|-0.016*<br>|
||(0.30)<br>|(0.31)<br>|(2.31)<br>|(2.25)<br>|
|Head'sage (log)|1.010**<br>|0.947***<br>|-0.128<br>5|-0.103<br>043|
||(2.51)<br>|(2.60)<br>|(0.0)<br>|(.)<br>|
|Head'sagesquared|-0.135**<br>|-0.126***<br>|0.019<br>|0.016<br>|
|'|(2.56)<br>|(2.65)<br>|(0.57)<br>|(0.50)<br>0015|
|Headseducation (log)|-0.029|-0.030<br>|-0.016<br>|-.<br>|
||(0.98)<br>|(1.12)<br>|(0.75)<br>|(0.75)<br>|
|Head'seducationsquared|0.015<br>|0.015<br>|0.014<br>|0.015<br>|
||(0.88)<br>|(0.98)<br>|(1.24)<br>|(1.34)<br>|
|Headwith off-farmjob<br>|-0.004<br>|-0.005<br>|0.031**<br>|0.029***<br>|
|experience<br>|(0.35)<br>|(0.45)<br>|(2.92)<br>|(2.90)<br>|
|Headwithpastmigration<br>|0.012<br>|0.013<br>|-0.008<br>|-0.006<br>|
|experience<br>|(0.92)<br>|(1.06)<br>|(0.90)<br>|(0.74)<br>|
|Femalehealed|0.007<br>|0.008<br>|0.003<br>|0.003<br>|
||(0.69)<br>|(0.78)<br>|(0.34)<br>|(0.38)<br>|
|Rernittancesreceived(log)|-0.003*<br>|-0.002*<br>|0.002*<br>|0.002*<br>|
||(1.78)<br>|(1.75)<br>|(1.71)<br>|(1.73)<br>|
|Householdsinvillagewith<br>|-0.005<br>|-0.006<br>|0.029**<br>|0.026**<br>|
|creditaccess|(0.25)|(0.34)|(2.19)|(2.01)|
|Villageland w.longtermuse<br>|0.118***<br>|0.1040**<br>|0.035*<br>|0.034*<br>|
|rights|(3.73)|(3.67)|(1.67)|(1.68)|
|ZemV6zirymigrationdurmmy|-0.013<br>|-0.009<br>|-0.012<br>|-0.011<br>|
|(village)|(0.83)|(0.61)<br>|(1.36)<br>|(1.34)<br>|
|Mainincomefromagriculture|0.048***|0.042***<br>|-0.005<br>|-0.005<br>|
|(village)|(3.26)|(3.13)|(0.37)|(0.39)|
|Household experiencedshock|-0.005<br>|-0.004<br>|0.003<br>|0.003<br>|
||(0.42)<br>|(0.34)<br>|(0.34)<br>|(0.30)<br>|
|Observations<br>|2824|2824|2824|2824|
|Loglikelihood|||||
|<br>Robustzstatisticsinparentheses;*sig|nificantat10%;*sig|nificantat5%;<sup>'*significant</sup>|<sup>at1%</sup>||

21
Table 4. Probit Results for Land Sale Market Particlpatlon

||LandP|urchases|Lan|dSales|
|---|---|---|---|---|
||Basic Model|AugmentedModel|Basic Model|AugmentedModel|
|Agriculturalability|0.039*°||-0.00400||
||(3.67)||(2.34)||
|Agriculutalability°RegionI||0.094°°°||0.006|
|||(3.30)||(0.94)<br>|
|Agriculutralability°Region2||0.024||-0.006000|
|||(1.24)||(2.74)|
|Agriculutralability°Region3||0.015<br>||0.001<br>|
|||(0.66)||(0.65)|
|Agriculutralability°Region4||<br>0.041°°||-0.0060°°|
|||(2.20)||(2.87)|
|P. c.landendowmentin1993(log)|-0.009°°°|<br>-0.010°°°|0.005°°°|0.005°°°|
||(4.22)|(4.42)|(5.30)<br>|(5.73)<br>|
|Valueofagriculturalassetsin1993|-0.000<br>|0.001<br>|-0.0010<br>|-0.0010<br>|
||(0.26)|(0.74)|(1.86)|(1.88)|
|Valueoftotalassetsin1993|<br>0.004°°|<br>0.005°°°|<br>0.000|0.000|
||(2.24)|(2.62)|(0.78)|(0.74)|
|Draft animalin1993|-0.002|-0.012|-0.006°°°|-0.0050°°|
||(0.26)|(1.24)|(3.19)|(3.34)|
|P. c.expenditurein1993|<br>0.005|<br>0.008|<br>0.00300|0.0020|
||(0.56)|(0.78)|(2.38)|(1.89)|
|Logofinitialhouseholdsize|0.027°°<br>|0.032°0<br>|-0.001<br>|-0.001<br>|
||(2.39)|(2.56)|(0.25)|(0.46)|
|Logofageofhouseholdhead|<br>0.144|<br>0.224|<br>0.061|0.057<br>|
||(0.41)|(0.57)|(1.03)|(1.15)|
|Logofhead's agesquared|<br>-0.021|<br>-0.032|<br>-0.009|-0.008|
||(0.45)|(0.63)|(1.13)|(1.26)|
|Logofhead's education|0.054|0.058|-0.001|-0.001|
||(1.50)|(1.44)|(0.20)|(0.16)|
|Lfhd' did|<br>0019|<br>0023|<br>0001|0001|
|ogoeas eucatonsquare|-.<br>|-.<br>|.<br>|.<br>|
||(1.02)<br>|(1.12)<br>|(0.25)<br>|(0.24)<br>|
|Headwithoff-farmjobexperience|-0.007|-0.013|-0.003<br>|-0.002<br>|
||(0.64)|(1.10)|(1.29)|(1.36)|
|Headwithpast migrationexperience|<br>0.008|<br>0.008|<br>0.002|0.001|
||(0.62)|(0.58)|(0.67)|(0.57)|
|Household headedby female|<br>-0.019°|<br>-0.023°°|0.000|0.000|
||(1.86)|(2.07)|(0.18)|(0.21)|
|Logofremittances received|-0.002|-0.003°|-0.000|-0.000|
||(1.53)|(1.74)|(1.09)|(1.20)|
|Shareofhouseholdsinvillagewith|<br>0.0540°0|0.058°°°|-0.002|-0.002|
|credit access|(353)|(321)|(0.61)|(0.79)|
|<br>Shareoflandinvillage titledwithlong|.<br>0.049°00|.<br>0.050°°|<br>0.0220|0.0210°|
|<br>termuse|<br>(2.64)|<br>(2.38)|<br>(1.96)|(1.87)|
|Dummyofvillagewithcommon|<br>0.010|<br>0.013|<br>0.003|0.003|
|temporarily migration|(0.87)|(0.99)|(1.27)|(1.39)|
|<br>Dummyofvillage withmainincome|004200|0049000|||
|<br>from agriculture|.<br>(2.38)|.<br>(2.59)|||
|<br>Dummyofhouseholdswith adultfamily|<br>0.006|0.006|0.008°0|0.0070°|
|<br>members die-|(0.50)|(0.45)|(2.17)|(2.28)|
|Interactionofshockand creditaccess|||-0019|-00180|
||||.<br>(1.39)|.<br>(1.71)|
|Observations<br>|2824|2824|<br>2824|2824|
|Loglikelihood|||||
|<br>Robustzstatisticsinparentheses;**0**significa|ntat10%;**00**signif|icantat5%;**000**significant|at1%||

22
|AppendixTable1.Fixed<sup>EffectPanelEstimation</sup>|<sup>ofCropProduction Fu</sup><br>Hhldfid<br>|<sup>nction</sup><br>HouseholdFixed|Village Fixed|VillageFixed|
|---|---|---|---|---|
||ouseoxe<br> <br>Effect(1)|<br>Effect (2)|<br>Effect(I)|<br>Effect(2)<br>|
|Logoftotalseedapplication|0.018***<br>|0.018***<br>441|0.012**<br>(400)|0.013***<br>(417)|
||(4.43)<br>**|(.)<br>**|.<br>_0005*'*_|.<br>0005***|
|Logoftotal pesticide use|0.004<br>|0.004<br>220|_._<br>(278)|.<br>(276)|
||(2.11)<br>|(.)<br> ***|.<br>00140**|.<br>0014**|
|Logoftotalorganicmanure<sup>use</sup>|0.011<br>|0.011 <br>|.<br>|.<br>|
||(5.75)<br>***|(5.75)<br>***|(9.86)<br>0028***|(9.76)<br>0028***|
|Logoftotalfertilizeruse|0.025<br>|0.025<br>|.<br>1040|.<br>_(1051)_|
||(6.94)<br>|(6.86)<br>***|(.)<br>6***|_._<br>0757***|
|Logoftotalcroparea|0.722***<br>|0.722<br>|0.73<br>|.<br>7978|
||(52.09)<br>|(52.12)<br>|(80.89)<br>0016|(.)<br>-0006|
|Logofhousehold head's<sup>age</sup>|0.059<br>|0.040<br>4|.<br>(073)|.<br>(032)|
||(1.33)|(0.9)|.|.<br>|
|Logofhouseholdsize||0.001<br>||0.093**<br>674|
|||(0.05)|0004*6|(.)|
|Logofno.ofhouseholdmember<sup>with ageless</sup><br>|0.001<br>||.<br>(239)||
|than14<br>|(0.40)<br>||.<br>0012***||
|Logofno.ofhouseholdmember<sup>withage</sup><br>|0.001<br>||.<br>377||
|between14and60|(0.12)<br>||(.)<br>||
|Logofno.ofhousehold member<sup>withage</sup><br>|.0.006**<br>||0.001<br>048||
|greaterthan 60|(2.08)||(.)<br>||
|_Uog_oftotalagriculturalassets|0.004***<br>|0.003***<br>|0.010***<br>|0.009**<br>|
|F135|(2.74)|(2.63)<br>|(10.10)<br>|(9.73)<br>|
|Shareofirrigatedareaintotal<sup>croparea</sup>|0.096**<br>|0.096***<br>|0.039**<br>202|0.039**<br>(205)|
||(4.40)|(4.36)|(.)|.|
|nunmmy<br>ofdraftanimal|0.037<br>|0.038<br>|0.050***<br>|0.046***<br>306|
||(1.53)<br>|(1.58)<br>|(3.36)<br>**|(.)<br>0364**|
|Year==98|0.358***<br>|0.358***<br>|0.365<br>313|.<br>3140|
||(30.60)|(30.56)|(.9)|(.)|
|Observations|6160|6160|6160|6160|
|R-squared|0.68|0.68|0.77|0.77|

,Robust z statistics in parentheses;<sup>* significant at10%;** significantat 5%;***significantat 1%</sup> 23
Appeadlz: Derlvadon oftpropsitdoms

> _AoposMion 1._ The amount of land rented in is strictly increasing in ability, a, and strictly decreasing in

> their land endowment _A_ . Rental markets will thus transfer land to "poor but efficient" producers.

> Total differentiating both sides of (l) with respect to a (again, i is ignored for notation simplicity), yields:

<!-- Start of picture text --> Pfl.(14, A) + pa(f,.,lapt3 + f a A) aA = 0 (Al)<br><!-- End of picture text -->

> Total differentiation of both sides of (2) or (2)' with respect to a, yields:

<!-- Start of picture text --> ifA (la, A) + pa(f 'a + fA a) =0 (A2)<br><!-- End of picture text --> Putting (Al) and (A2) in matrix form yields: _[Paf,,,. Pof aAl [ taa -pfA_

> Solving for _8A/8a_ by Cramer's rule, yield:

<!-- Start of picture text -->
-<br>apcf,. Pfla<br>8A/Alaa = P'' P | = P Af , P >0 (A3) (for fA >0, f° . > 0, fl.l. < 0,<br>IHI ~~~IHI<br><!-- End of picture text -->

and we know jJR]>O by the sufficient second order condition of maximization problem.) This implies that for all households that participate in rental narkets (on either side), the amount of area operated will increase with ability.

For households renting in, the amount of land rented in is the difference between the amount of opeational land and the land endowment, i.e. _A,,, = A - A (A4)._

> Total differentiation of both sides of (A4) with respect to a, yields _a = a >_ o implying that for _aa da_

households who rent in land, the amount of land rented in is increasing in agricultural ability. Total

> differentiation of both sides of (A4) with respect to _A,_ yield _'A- =_ -1 < 0, implying that for the households who rent in land, the amount of land rented in is strictly decreasing in land endowment.

For those households that rent out land, the amount of land rented out is the difference between the land endowment and the land used for self-cultivation, or formally, A.., _=_ **_A_** - _A (A5)._
Total differentiation of both sides<sup>of (AS)with respectto</sup><sup>_a,_yields</sup><sup>_Aw_=</sup><sup>_-a_</sup> < 0, which implies that for those households who rent<sup>out land,theamountof land rentedout willdecreasein agricultural</sup> ability. Total differentiation of<sup>both sidesof (A5)with respectto</sup><sup>_A_, yields</sup> _aA-*_ = 1 > 0, implying tiat _6A-_ for those households who rent out<sup>land, theamount rented out is strictlyincreasing in land endowment.</sup> _Proposition_ **_2._** Presence of transaction<sup>costsdrives awedge between those renting in and those renting out</sup> with any increase in T decreasing<sup>_a,_andincreasing</sup><sup>_a.,_therebyexpandingthe rangeof producers who</sup> remain in autarky, reducing the number<sup>of householdswhoparticipatein rentalmarkets,aswellas the</sup> amount of land transacted through<sup>rental markets.</sup> Totally differentiating both sides<sup>of equation(1) and (2) with respect to T, yields</sup> <!-- Start of picture text --> &a~~O<br>paf,,,, -T+PLf-A PA T=<br>and paf,. T- + p afAA-=-l<br><!-- End of picture text --> We obtain _ai T_ from the first<sup>equation and substituteinto the second equation, which yields</sup> <!-- Start of picture text --> aA -1 2 < 0 (A6)<br>AT pa[f Mf,.,. -(fA,.)2]<br><!-- End of picture text --> Equation (A6) implies that households<sup>who rent in will operate lessland as the transactioncost increases.</sup> Total differentiation of both sides<sup>of(A4)withrespecttoT yields</sup><sup>_Mi_=</sup><sup>_a_< 0,implyingthat</sup> households who still rent in land<sup>will rent in lessand as the transactioncost increases.</sup> Totally differentiating both sides<sup>of equation(1) and(2)'with respect to T and rearranging terms yields:</sup> <!-- Start of picture text --> aA 1 _ > 0 (A7)<br>,9T pa:[fMAA. -(fA,. ) ]<br><!-- End of picture text --> Equation (A7) implies that households<sup>in the rentingin pool will operate less land as the transactioncost</sup> increases. Total differentiate both<sup>sidesof (AS) withrespect to T, yield</sup><sup>_M_</sup> _' -. = _M_ < 0, implies that _aT iT_ households who still rent out land<sup>will rent outless as the transactioncost increases.</sup>
For households who continue to rent in, the optimal operational land holding can be obtained from equation (1) and (2) as _A, = A(a,(p,r,T,w)._ SettingA, to _A1,_ yields the identity <!-- Start of picture text --> MI<br>=- dTU da4T ° (A9) (for from (A) and a from (A6)),<br>dT 8A, 8cara<br>aa<br><!-- End of picture text --> implying that as the transaction costs increase more households would change from renting in land to autarky.

> Similarly for the households who continue to rent out land, and based on (1) and (2)', we can derive the following proposition:

<!-- Start of picture text --> 8A1<br>daT 4< 0 (A10) (for 8A > O from (A) and A, > ° from (A7)),<br>dT - 8aac i aT<br>aa<br><!-- End of picture text --> implying that, as transaction costs increase, more households would change from renting out to autarky.

Proposition 3. Increases of the exogenously given wage for off-farm employment will increase the amount of land transacted in rental markets by increasing the amount rented out by households with low agricultural ability (who join the off-farm labor force) and the amount rented in by those with high-ability (who specialize in agricultural production). This will be associated with a decrease in the equilibrium rental rate which, in a risk-free environment, will make everybody better off.

Without loss of generality, we assume that only the households who originally rented land out will take advantage of the increased off-farm opportunities. Those who rented in land originally will continue to rent in land and the their off-farm opportunities are assumed to remain the same as before. In other words, households who rented out land before will face wage increase while those who rented in land before will face the same wage with the increase of the overall off-farm opportunities.

> For those households who rented out land, we take the derivative of both sides of equation (1) or equation (2)' with respect to w, yield
<!-- Start of picture text --> Pafl r a + POftA OA<br>PCfAl' a+ PCYSM , = O<br>8w 8w<br><!-- End of picture text --> Obtain _89/7w_ from the second equation<sup>and substituteinto thefirst equation, we will have</sup> <!-- Start of picture text --> 8A fA < 0 (Al 1)<br>8W Pa[(fA,.) 2 fdIfM]<br><!-- End of picture text --> which implies that households who<sup>rentedoutland will useevenlessendowmentforself-cultivation</sup> and AO, = - _A =, sA,_ = _A_ > °, implying that amount of land<sup>rentedoutbyindividual</sup> household is increasing in its off-farm<sup>opportunity,as consequence,aggregatesupply of land increases.</sup> If we also assume that off-farm opportunities<sup>willnot affectthosehouseholdswho originallyrentedin,</sup> greater supply of land due to increases<sup>in the wage ratewill lead to a decreasein rental rate.To show this</sup> informally, let _a,,_ = _a,,(a,,..a,,p,wi',r*,T)_<sup>be</sup> the aggregate rent-in curve, and let _ao, = a,, (al,...a, p,w°"',r*,T)_<sup>betheaggregate rent-outcurve.Atequilibrium,setamountof land</sup> rented in equals to the amount of land rented out, or _a,,,(a1,...a,Ip,wmf,r*,T) = a., (a,.. ",p,wou",r*,T)_ (A12) Total differentiate both sides of (Al<sup>1) by allowing</sup><sup>_r*_and</sup><sup>_w%"'_to vary, yield:</sup> <!-- Start of picture text --> aaow<br>aa i*dr* = lao °dr +aao 1 -dw°, rearrange terms, we will have dr & w (A13)<br>8gr &Out dw 1 = 5ar 8r*aa.(3<br>-r * 0-.*<br>It is easy to show that the sign of (A13) is negative. We know 'O >0 >O, 8aaa a < 0, and<br><!-- End of picture text --> ut°* > 0; we just showed that the equilibrium<sup>rental ratefalls as the off-farm opportunities increases.</sup>
References: Barhani, B., M. R. Carter and W. Sigelko (1995), "Agro-Export Production and Peasant Land Access: Examining the Dynamic between Adoption and Accumulation", _Journal of Development Economics, 46 (1),_ 85-107.

> Basu, K. (1992), "Limnited Liability and the Existence of Share Tenancy", _Journal of Development Economics, 38 (1),_ 203-220.

Berry, R. A. and W. R. Cline (1979), "Agrarian structure and productivity in developing countries", _Geneva: Intemational Labor Organization.._ Bidinger, P. D., T. S. Walker, B. Sarkar, A. R. Murty and P. Babu (1991), 'Consequences of midl98Os drought: longitudinal evidence from Mahbubnagar", _Economic and Political Weekly, 26_ 105-114.

Binswanger, H. P., K. Deininger, G. A. W. B. Feder, B. World and B. World (1995), "Power, Distortions, Revolt and Reformn in Agricultural Land Relations", _Handbook of development economics. Volume 3B (1995): 2659-2772,_ 2659-2772.

> Brandao, A. S. P. and G. C. d. Rezende (1992), "Credit subsidies, inflation and the land market in Brazil: a theoretical and

> empirical Analysis ", Washington D.C.: World Bank.

Burgess, R. (2001), "Land and Welfare: Theory and Evidence from China", _London School of Economics Working Paper._

> Cain, M. (1981), "Risk and Insurance: Perspectives on Fertility and Agrarian Change in India and Bangladesh", _Population and Development Review, 7_ (3),435-474.

> Carter, M. and L Galeano (1995), "Campesino, Tierra y Mercado", _Asunci6n: CEPES._

> Carter, M.and R. Salgado (2001), "Land Market Liberalization and the Agrarian Question in Latin America", in: A.de Janvry, J.P.Platteau and E.Sadoulet, eds., _Land Access, Rural Poverty and Public Action,_ Cambridge: Oxford University Press.

Carter, M. R. (1984), "Identification of the Inverse Relationship between Farm Size and Productivity. An Empirical Analysis of Peasant Agricultural Production", _Oxford Economic Papers, 36 (1),_ 13 1-145.

Carter, M. R. and F. J. Zimmerman (2000), "The Dynamic Cost and Persistence of Asset Inequality in an Agrarian Economy", _Journal of Development Economics, 63_ (2), 265-302.

Che, T. N., T. Kompas and N. Vousden (2001), "Incentives and Static and Dynamic Gains from Market Reform: Rice Production in Vietnam", _Australian Journal ofAgricultural and Resource Economics, 45_ (4), 547-572.

Csaki, C., G. Feder, and Z. Lerman (2002), "Land Policies and Evolving Farm Structures in Transition Countries", Policy

> Research Working Paper 2794, Washington DC: World Bank.

de Janvry, A., G. Gordillo, J. P. Platteau and E. Sadoulet (2001), _Access to Land, Rural Poverty, and Public Action,_ Oxford: Oxford University Press.

Deaton, A. (1991), "Saving and Liquidity Constraints", _Econometrica, 59 (5),_ 1221-1248.

Deininger, K. and J. S. Chamorro (2003), "Investment and Income Effects of Land Regularization: The Case of Nicaragua", _Agricultural Economics, forthcoming._ Deininger, K., S. Jin, B. Adenew and S. Gebre-Selassie (2002), "Tenure Security and Land-Related Investment: Evidence from Ethiopia", _World Bank Policy Research Paper._ Do, Q. T. and L. lyer (2002), "Land Rights and Economic Development: Evidence From Vietnam", _Department of Economics. MIT._ Dorward, A. (1999), "Farm Size and Productivity in Malawian Smallholder Agriculture", _Journal of Development Studies, 35 (5),_ 141-161.

> Echenique, J. and N. Rolando (1990), "Tierras de Parceleros: LDonde Estin?", _Agraria: Santiago. Chile.._

Feder, G. (1985), "The Relation between Farm Size and Farm Productivity: The Role of Family Labor, Supervision and Credit Constraints", _Journal of Development Economics, 18_ (2-3), 297-313.

Feder, G. and et al. (1992), "The Determinants of Farm Investment and Residential Construction in Post-Reform China", _Economic Development and Cultural Change, 41 (1),_ 1-26.

Ghatak, M. and P. Pandey (2000), "Contract Choice in Agriculture with Joint Moral Hazard in Effort and Risk", _Journal of Development Economics, 63_ (2), 303-326.

Gunjal, K., S. Williams and R. Romain (1996), "Agricultural Credit Subsidies and Farmland Values in Canada", _Canadian Jounal of Agrkultural Economics, 44 (1),_ 39-52.

> Kevane, M. (1996), "Agrarian Structure and Agricultural Practice: Typology and Application to Western Sudan", _American Journal ofAgricultural Economics, 78 (I),_ 23 6-245.
Kranton, R. E. and A. V. Swamy (1999), "The Hazards of Piecemeal<sup>Reform British CivilCourtsandtheCredit Market in</sup> Colonial India", _Journal of Development Economics, 58 (1),_<sup>1-24.</sup> Kutcher, G. P. and P. L. Scandizzo (1981), "The agricultural<sup>economyof Northeast Brazil",</sup><sup>_Washington, D.C.: World Bank._</sup> Laffont, _J.-J._ and M.-S. Matoussi (1995), " Moral Hazard,<sup>FinancialConstraintsandSharecroppingin El Oulja,",</sup><sup>_Reviewof_</sup> _Economic Studies, 62 (j),_ 381-399.

Lanjouw, J. 0. (1995), "Information and the Operation of<sup>Markets:Tests Basedon a GeneralEquilibrium Modelof Land Leasing</sup> in India", _Yale University Working Paper._ Lansink, A. O., K. Pietola and S. Backman (2002), "Efficiency<sup>and Productivityof Conventionaland OrganicFarms in Finland</sup> 1994-1997", _European Review ofAgricultural Economics,_<sup>_29 (1),_51-65.</sup> Lastarfia-Cornhiel, S. (1997), "Impact of Privatization on<sup>Gender andPropertyRightsinAfrica",</sup><sup>_World Development, 25_(8),</sup> 1317-1333.

Lin, J. Y. (1992), "Rural reforrns and agricultural growth<sup>in China",</sup><sup>_American Economic Review, 82 34-51._</sup> Manji, A. (2003), "Capital, Labour and Land Relations in<sup>Africa:A Gender Analysisof theWorldBank's'PolicyResearch</sup> Report on Land Institutions and Land Policy", _Third World Quarterly,_<sup>_24_(1), 97-114.</sup> Nega, B. (2002), "Ethiopia Country Case Study",<sup>_World Bank Regional Workshop on Land Issues in Africa and MENARegion_</sup> _Kampala, Uganda._ Newell, A., K. Pandya and J. Symons (1997), "Farm Size<sup>and the Intensity of Land Use in Gujarat",</sup><sup>_Oxford Economic Papers, 49_</sup> (2), 307-315.

Olinto, P. V. (1995), "Land quality and the inverse relationship<sup>betweenfarm sizeandproductivity-.A paneldataanalysisof</sup> Paraguayan farm households", _Department ofAgricultural_<sup>_Economics, University of Wisconsin-Madison._</sup> Otsuka, K. (2002), "Enhancing Land Access and Land rights for the<sup>Marginalized: RegionalOverviewin Intemational Context",</sup> _World Bank Regional Land Workshop in Phnom Penh, Cambodia._ Otsuka, K., H. Chuma and Y. Hayami (1992), "Land and<sup>LaborContracts in Agrarian Economies: Theoriesand Facts',</sup><sup>_Journal_</sup> _of Economic Literature, 30_ (4), 1965-2018. Phong, N. and P. Glewwe (2002), "Economic<sup>MobilityIn VietnamInthe1990s",</sup><sup>_WorldBankDiscussion Paper 2838,_</sup> _Washington, D.C.._ Pingali, P. L. and V. T. Xuan (1992), "Vietnam Decollectivization<sup>andRiceProductivity Growth",</sup><sup>_Economic Development and_</sup> _Cultural Change, 40_ (4), 697-718. Platteau, J. P. (1996), "The Evolutionary Theory of Land Rights<sup>asAppliedtoSub-SaharanAfrica:A CriticalAssessment",</sup> _Development and Change, 27_ (1), 29-86. Quibria, M. G. and S. Rashid (1986), "Sharecropping in Dual<sup>AgrarianEconomies:ASynthesis",</sup><sup>_Oxford Economic Papers, 38_</sup> (1),94-111. Quisumbing, A. R. (2001), "Women's Land Rights in the Transition<sup>to Individualized Ownership:Implications for Tree-Resource</sup> Management in Western Ghana", _EconomicDevelopment_<sup>_and Cultural Change,_50(1),157-181.</sup> Ravallion, M. and D. van de Walle (2001), "Breaking Up<sup>the CollectiveFarm:Welfare OutcomesofVietnam'sMassiveLand</sup> Privatization", _World Bank Working Paper #2710._ Ray, T. and N. Singh (2001), "Limited Liability, Contractual<sup>Choice,and theTenancyLadder",</sup><sup>_Journal of Development_</sup> _Economics, 66_ (1), 289-303.

Reardon, T., J. A. Berdegue and G. Escobar (2001), "Rural Nonfarm<sup>Employment andIncomesin Latin America:Overviewand</sup> Policy Implications", _World Development, 29_ (3), 395-409.

Robison, L. J., D. A. Lins and R. VenKataman (1985), "Cash<sup>rentsand land valuesin U.S.agriculture",</sup><sup>_American Journal of_</sup> _Agricultural Economics, 67_ 795-805. Rosenzweig, M. R. and K. 1. Wolpin (1993), "Credit Market Constraints,<sup>ConsumptionSmoothing,andthe Accumulationof</sup> Durable Production Assets in Low-Income Countries: Investment in<sup>BullocksinIndia",</sup><sup>_Journal of Political Economy,101_(2),</sup> 223-244.

Sadoulet, E., S. Fukui and A. de Janvry (1994), "Efficient Share Tenancy<sup>Contractsunder Risk:The Caseof Two Rice-Growing</sup> Villages in Thailand", _Journal ofDevelopment Economics, 45_<sup>(2), 225-243.</sup> Shaban, R. A. (1991), "Does the land tenancy market equalize<sup>holdings?",</sup><sup>_Working Paper, University of Pennsylvania._</sup> Sharma, N. and J. Dreze (1996), "Sharecropping in a North Indian<sup>Village",</sup><sup>_Journal of Development Studies 33 (1): 1-39.._</sup>
Shetty, S. (1988), "Limited Liability, Wealth Differences and Tenancy Contracts in Agrarian Economies', _Jowrnal of Development Economics, 29_ (1), 1-22.

Tanner, C. (2002), "Law Making in an African Context The 1997 Mozambican Land Law", _FAO Legal Papers Online #26._ Tran, T. Q. (1998), "Economic Reforms and Their Impact on Agricultural Development in Vietnam", _ASEAN Economic Bulletin,_ 15(1),3046.

Udry, C. (1997), "Recent Advances in Empirical Microeconomic Research in Poor Countries: An Annotated Bibliography", _Journal of Economic Education, 28 (1),_ 58-75.

Wan, G. H. and E. Cheng (2001), "Effects of Land Fragmentation and Returns to Scale in the Chinese Farming Sector", _Applied Economics, 33_ (2), 183-194.

World Bank (2000), "Vietnam Rural Strategy, _The World Bank Rural Development and Natural Resources Sector Unit, East Asia and Pacific Region._ World Bank (2002), "Mexico- Land Policy A Decade after the Ejido Reforms", _The World Bank, Rural Development and Natural Resources Sector Unit._ Zeldes, S. P. (1989), "Consumption and Liquidity Constraints: An Empirical Investigation", _Journal of Political Economy, 97_ (2), 305-346.

Zimmerman, F. J. and M. R. Carter (1999), "A Dynamic Option Value for Institutional Change: Marketable Property Rights in the Sahel", _American Journal ofAgricultural Economics, 81_ (2), 467-478.
**Policy Research Working Paper Series**

||**Title**|**Author**|**Date**|**Contact**<br>**forpaper**|
|---|---|---|---|---|
|WPS2996|Bank Competition,Financing<br>Obstacles,andAccesstoCredit|ThorstenBeck<br>Asl1Demirgui-Kunt<br>Vojislav Maksimovic|March 2003|K.Labrie<br>31001|
|WPS2997|Financialand LegalInstitutions<br>andFirmSize|ThorstenBeck<br>AshlDemirgu9-Kunt<br>VojislavMaksimovic|March2003|KLabrie<br>31001|
|WPS2998|DoesMicro-Credit EmpowerWomen <sup>9</sup><br>EvidencefromBangladesh|MarkM.Pitt<br>ShahidurRKhandker<br>JenniferCartwright|March2003|PKokila<br>31001|
|WPS2999|ExplainingLiberalization<br>CommitmentsinFinancial<br>Services Trade|PhilippHarms<br>AadityaMattoo<br>LudgerSchuknecht|March2003|PFlewitt<br>32724|
|WPS3000|International ClimateRegime beyond<br>2012AreQuota AllocationsRules<br>Robust toUncertainty?|Franck Lecocq<br>RenaudCrassous|March2003|VSoukhanov<br>35721|
|WPS3001|AnIntroductiontoFinancialand<br>EconomicModelingforUtility<br>Regulators|AntonioEstache<br>MartinRodriguezPardina<br>JoseMarfaRodriguez<br>German Sember|March2003|GChenet-Smith<br>36370|
|WPS3002|Information-Based Instrumentsfor<br>ImprovedUrbanManagement|UweDeichmann<br>SomikV.Lall<br>AjaySun<br>PragyaRajoria|March2003|Y.D'Souza<br>31449|
|WPS3003|TheInvestmentClimate andthe<br>Firm.Firm-Level EvidencefromChina|MaryHallward-Driemeier<br>ScottWallsten<br>LixinColinXu|March 2003|PSintim-Aboagye<br>37644|
|WPS3004|Institutions,Trade,andGrowth<br>RevisitingtheEvidence|DavidDollar<br>Aart Kraay|March 2003|ABonfield<br>31248|
|WPS3005|Vouchers forBasicEducationin<br>Developing CountriesAPrincipal-<br>Agent Perspective|VarunGauri<br>AyeshaVawda|March 2003|HSladovich<br>37698|
|WPS3006|SocialRights andEconomics:Claims<br>to HealthCare andEducationin<br>DevelopingCountries|Varun Gauri|March2003|HSladovich<br>37698|
|WPS3007|TheImpactofUrbanSpatialStructure<br>onTravelDemandintheUnited<br>States|AntonioMBento<br>MaureenLCropper<br>AhmedMushfiq Mobarak<br>KatjaVinha|March2003|VSoukhanov<br>35721|
|WPS3008|Technology,Computers,andWages<br>EvidencefromaDeveloping Economy|ChrisNSakellariou<br>HarryAPatrinos|March2003|NVergara<br>30432|
|WPS3009|AgricultureintheDohaAgenda|PatrickMesserlin|April2003|PFlewitt<br>32724|
|WPS3010|VulnerabilityinConsumption,<br>Education,andhealthEvidencefrom<br>Moldovaduring theRussianCrisis|EdmundoMurrugarra<br>Jos6Signoret|April 2003|E.Murrugarra<br>34452|
# **Policy Research Working Paper Series**

||**Title**|**Author**|**Date**|**Contact**<br>**forpaper**|
|---|---|---|---|---|
|WPS3011|RenegotiationofConcession<br>ContractsinLatinAmerica|J.LuisGuasch<br>Jean-JacquesLaffont<br>StephaneStraub|April 2003|J.Troncoso<br>37826|
|WPS3012|Just-in-CaseInventories.ACross-<br>Country Analysis|J.LuisGuasch<br>JosephKogan|April2003|J.Troncoso<br>37826|