Land-Market Restrictions and Agricultural Productivity under Market Power
Julián Arteaga
I investigate how government restrictions on land markets impact the agricultural sector, and assess whether such restrictions can curb distortions that stem from the presence of market power. To do so, I develop a general-equilibrium production model in which large landholders exert market power in both land and labor markets, and where there are limits on land accumulation. Restrictions reduce the inefficiencies arising from market power, but also hinder productive reallocation, with the net effect on productivity depending on initial levels of land concentration. I empirically test the model’s predictions by estimating how a law imposing municipality-specific limits on landholdings in Colombia affected productivity, land concentration, and agricultural labor markets. To estimate the impact of the law, I combine a collection of rich micro-level data sources which include a newly built dataset on municipal agricultural productivity. Exploiting plausibly exogenous variation in restriction stringency across bordering municipalities, I find that imposing restrictions caused a permanent reduction in productivity and only modest reductions in overall land inequality. However, restrictions also increased both agricultural workers’ earnings and the employment share in agriculture, suggesting they were beneficial to landless wage laborers by reducing labor market power.
Event: World Bank Land Conference 2024 - Washington
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