Land Sales and Rental Markets in Transition: Evidence from Rural Vietnam*
| Published date | 01 February 2008 |
| Author | Klaus Deininger,Songqing Jin |
| Date | 01 February 2008 |
| DOI | http://doi.org/10.1111/j.1468-0084.2007.00484.x |
67
©Blackwell Publishing Ltd and the Department of Economics, University of Oxford, 2007. Published by Blackwell Publishing Ltd,
9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.
OXFORD BULLETIN OF ECONOMICS AND STATISTICS, 70, 1 (2008) 0305-9049
doi: 10.1111/j.1468-0084.2007.00484.x
Land Sales and Rental Markets in Transition:
Evidence from Rural Vietnam*
Klaus Deininger and Songqing Jin
The World Bank, Washington DC, USA
(e-mail: kdeininger@worldbank.org; sjin@worldbank.org)
Abstract
Impact and desirability of land transfers in post-socialist-transition economies have
been subject of considerable debate. We use data from Vietnam to identify factors
conducive to the development of land markets and to assess potentially differential
impacts of rental and sales. Results show that both rental and sales transfer land to
more productive producers but that rental is more important for the poor to access land
that becomes available as the non-farm economy develops. The fact that secure land
rights significantly increase supply of land to the rental market suggests that govern-
ment has a key role in facilitating emergence and functioning of efficiency-enhancing
land markets.
I. Introduction
During the last decade, countries whose rural sector had been collectivized have
made considerable, though uneven, 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 (Rozelle and Swinnen, 2004; Csaki, Feder and
Lerman, 2004), China had, in 1978, established the Household Responsibility Sys-
tem, leading to a large surge in agricultural production (McMillan, Whalley and
Zhu, 1989; Lin, 1992). Other Asian countries such as Vietnam, Laos and Cambodia,
*Support from the collaborative DFID-WorldBank program on land policies and rural development and the
Norwegian ESSD Trust Fund is gratefully acknowledged. The paper has benefited from insightful comments
by G. Feder, K. Otsuka, J. Swinnen, and three anonymous reviewers. The views expressed in the paper are
those of the authors and do not necessarily reflect those of the World Bank, its Board of Executive Directors,
or the countries they represent.
JEL classification numbers: O12, Q15.
68 Bulletin
abandoned collectivization and moved towards formulation of new land laws. Prob-
lems associated with collective farming also led to the disappearance of collectives
in Ethiopia, Mozambique and Nicaragua, three countries that made the transition
towards individual land rights in the 1990s (Tanner, 2002; Deininger, Zegarra and
Lavadenz, 2003; Deininger and Jin, 2006). This is similar to a strengthening of
private land use rights adopted elsewhere, for example, in the context of Mexico’s
1992 Constitutional Reforms (World Bank, 2002).
Although all of these reforms have improved individuals’ authority to make deci-
sions on land use, the extent to which land can be transferred, either through rentals
or sales, still varies widely across countries. In fact, many countries continue to
impose restrictions on households’ ability to transfer land either through land rental
or sale (Prosterman and Hanstad, 1999) even though there is now increasing evidence
that such restrictions are often either difficult to enforce (Andre, 2002) or ineffective
(Woodhouse,2003). One of the justifications for such restrictions is that liberalization
of land sales markets can, in the absence of markets for insurance, lead to distress sales
or speculative land accumulation with negative consequences on equity as well as
efficiency (Platteau, 1996; Manji, 2003). At the same time, there is evidence suggest-
ing that, in a post-transition context, explicit restrictions on land sales markets, high
transaction taxes and registration fees in these markets, and biased access to public
goods reduce opportunities for productive farmers to increase their income through
market-based land acquisition (Csaki and Lerman, 2002).
Given that conclusions from theoretical models are ambiguous and likely to be
dependent on the specific conditions, empirical evidence would be particularly rel-
evant. However, the available evidence to support such judgments is subject to two
shortcomings. On the one hand, the distinction between land transfers through rental
and sales is often not clearly drawn out even though, a priori, one would expect
the two markets to respond quite differently to the market imperfections commonly
encountered in rural areas of developing countries. Even though there is a growing
consensus on the positive impact of land rental markets (Sadoulet, Murgai and de
Janvry, 2001), much less is known on the performance of sales markets and there
are hardly any studies that compare the performance of rental and sales markets in
the same environment, thus ensuring comparability. On the other hand, geographical
coverage of existing evidence, especially on the performance of land sales markets,
is quite uneven. Most studies relating to land sales originate from Latin America, a
continent that is characterized by high inequality in access to land, a long history of
distortions in agricultural markets, a tradition of weak property rights and often sig-
nificant entry barriers into the rural non-farm sector (Reardon, Berdegue and Escobar,
2001). This evidence, for example, from Chile (Echenique and Rolando, 1991)
and Honduras (Carter and Salgado, 2001) seems to confirm that land sales markets
do not necessarily increase efficiency although examples from Paraguay (Carter
and Galeano, 1995) and Guatemala (Barham, Carter and Sigelko, 1995) imply that
under some circumstances well-functioning land sales markets may also transfer
land to more productive producers. Further empirical evidence regarding the factors
©Blackwell Publishing Ltd and the Department of Economics, University of Oxford 2007
Land sales and rental markets in transition 69
underlying the performance of land sales and rental markets as well as their impact,
especially for transition countries, would therefore be of considerable interest. Such
analysis would have to explore the extent to which markets contribute to equity, i.e.
provide land access to the poor and contribute to greater efficiency, and whether there
are potential trade-offs between these goals.
In this paper, we address this issue by providing evidence on the functioning of
land rental and sales markets separately and by using a measure of households’ pro-
ductive efficiency for the case of Vietnam, one of the few transition countries where,
even though land ownership remains with the state, short-term rentals and permanent
transfers of use rights are both allowed. Conceptually, and in line with the literature,
we assume that land markets are driven by three factors, households’ agricultural
ability, which is unobserved; labour market imperfections in the form of supervision
constraints; and capital market imperfections (Deininger and Jin, 2005). Empirically,
a large and nationally representative panel data set is used to illustrate the evolution
of markets over time and derive a proper measure of producers’ ability that can be
used to make inferences on the productivity impact of land markets.
The paper is structured as follows: Section II provides background on Vietnamese
land policy, the conceptual framework and the econometric approach. Section III
describes the data used and reports summary statistics on socio-economic charac-
teristics and land market participation by sample households. Section IV discusses
the econometric evidence on demand and supply of land in sales and rental markets,
respectively. Section V concludes with a number of implications for policy.
II. Background and conceptual framework
We set the scene by describing recent land policy initiatives in Vietnam and then pre-
senting the conceptual model and the estimation strategy underlying our empirical
analysis, based on a general discussion of land and other factor markets in developing
countries. From 1981, Vietnamhas embarked on a process of gradually strengthening
individuals’ transfer rights, allowing both rentals and sales. To compare outcomes in
rental and sales markets, we use farmers’ (unobserved) ability, the level of off-farm
development and government policies as key determinants of the functioning of rental
markets and discuss how initial wealth, incidence of shocks and access to credit will
affect outcomes observed in land sales markets, deriving a number of empirically
testable hypotheses.
Land policy and broader economic environment in Vietnam
From 1981, Vietnam started to transform its rural sector from collectivized agricul-
tural production to a system based on households initiative, a move that culminated
in the passage of the 1988 Land Law (World Bank, 2000). Studies have shown that
this led to significant increases in overall rural productivity, although pre-existing
differences between North and South were not eliminated (Pingali and Xuan, 1992;
©Blackwell Publishing Ltd and the Department of Economics, University of Oxford 2007
To continue reading
Request your trial