Land registration, economic development,

and poverty reduction

Gershon Feder

Motivation • Recent emphasis on institutions

– Importance from cross-country, country- and firm-level studies – Land & real estate as one of the most important assets – Differences in mortgage debt/GDP (58% US; 14% LAC, 11% MNA; 22% Asia)– Property rights to land as a key development issue

• Evolution of property rights institutions– Recording systems with a very long history– Land administration

• Demarcation & survey• Registration & record keeping• Adjudication of rights & conflict resolution• Land management

• Objective of paper – Identification of channels for impact under ideal circumstances– Limitations in real world settings – Review of evidence on impacts of land registration systems– Implications for research & policy

Motivation • Recent emphasis on institutions

– Importance from cross-country, country- and firm-level studies – Land & real estate as one of the most important assets – Differences in mortgage debt/GDP (58% US; 14% LAC, 11% MNA; 22% Asia)– Property rights to land as a key development issue

• Evolution of property rights institutions– Recording systems with a very long history– Land administration

• Demarcation & survey• Registration & record keeping• Adjudication of rights & conflict resolution• Land management

• Objective of paper – Identification of channels for impact under ideal circumstances– Limitations in real world settings – Review of evidence on impacts of land registration systems– Implications for research & policy

Motivation • Recent emphasis on institutions

– Importance from cross-country, country- and firm-level studies – Land & real estate as one of the most important assets – Differences in mortgage debt/GDP (58% US; 14% LAC, 11% MNA; 22% Asia)– Property rights to land as a key development issue

• Evolution of property rights institutions– Recording systems with a very long history– Land administration

• Demarcation & survey• Registration & record keeping• Adjudication of rights & conflict resolution• Land management

• Objective of paper – Identification of channels for impact under ideal circumstances– Limitations in real world settings – Review of evidence on impacts of land registration systems– Implications for research & policy

The role of the state

• Definition and enforcement of property rights – Reflects broader social consensus – Draws on courts and judicial system in general– Can reduce overspending by individuals (fences)

• Provision of information on land ownership – Ensure validity of info and avoid duplication of effort – Avoid costly searches by interested parties – Reduce scope for informational asymmetries that increase transaction

cost

The role of the state

• Definition and enforcement of property rights – Reflects broader social consensus – Draws on courts and judicial system in general– Can reduce overspending by individuals (fences)

• Provision of information on land ownership – Ensure validity of info and avoid duplication of effort – Avoid costly searches by interested parties – Reduce scope for informational asymmetries that increase transaction

cost

Channels for property rights’ impact• Improved tenure security & higher investment

– Less unproductive spending on securing rights & disputes (courts) – Lower expropriation risk leads to more land-attached investment – Increase in net worth affects other economic decisions (incl. gender)

• Efficiency-enhancing land transactions – Renting can entail risk to ownership

• Government interprets it as signal that land no longer needed• Tenant won’t return at end of contract period

– Public information reduces this risk and thus transaction cost– Similar reduction of asymmetric information for sales transactions

• Use of land as collateral for credit – Characteristics make land an ideal collateral to reduce credit rationing– Reliable information improves scope for using this– But other conditions will need to be satisfied

Channels for property rights’ impact• Improved tenure security & higher investment

– Less unproductive spending on securing rights & disputes (courts) – Lower expropriation risk leads to more land-attached investment – Increase in net worth affects other economic decisions (incl. gender)

• Efficiency-enhancing land transactions – Renting can entail risk to ownership

• Government interprets it as signal that land no longer needed• Tenant won’t return at end of contract period

– Public information reduces this risk and thus transaction cost– Similar reduction of asymmetric information for sales transactions

• Use of land as collateral for credit – Characteristics make land an ideal collateral to reduce credit rationing– Reliable information improves scope for using this– But other conditions will need to be satisfied

Channels for property rights’ impact• Improved tenure security & higher investment

– Less unproductive spending on securing rights & disputes (courts) – Lower expropriation risk leads to more land-attached investment – Increase in net worth affects other economic decisions (incl. gender)

• Efficiency-enhancing land transactions – Renting can entail risk to ownership

• Government interprets it as signal that land no longer needed• Tenant won’t return at end of contract period

– Public information reduces this risk and thus transaction cost– Similar reduction of asymmetric information for sales transactions

• Use of land as collateral for credit – Characteristics make land an ideal collateral to reduce credit rationing– Reliable information improves scope for using this– But other conditions will need to be satisfied

Potential limitations I• Weak or absent state institutions for enforcement of rights

– Inability to enforce rights against individuals or the state• State’s commitment to desist from expropriation not credible• Inability to prevent opportunistic behavior by individual parties

– Potentially dangerous if existing institutions are displaced

• Corruption & bad governance undermine registry info– Asymmetric access to information facilitates land grabs – Neglect and de facto elimination of secondary rights – Fraudulent records, corruption in registry introduce ambiguity– Poor will be adversely affected & suffer most

• Relative land abundance – Neglect of the truly scarce factor makes registration irrelevant at best– Limited (or negative) impact on investment– Increased rather than reduced transaction cost through a parallel system – Registration of group rights can avoid this if

• Membership & management structure clearly defined and transparent• Options for transition (e.g. via majority vote) available

Potential limitations I• Weak or absent state institutions for enforcement of rights

– Inability to enforce rights against individuals or the state• State’s commitment to desist from expropriation not credible• Inability to prevent opportunistic behavior by individual parties

– Potentially dangerous if existing institutions are displaced

• Corruption & bad governance undermine registry info– Asymmetric access to information facilitates land grabs – Neglect and de facto elimination of secondary rights – Fraudulent records, corruption in registry introduce ambiguity– Poor will be adversely affected & suffer most

• Relative land abundance – Neglect of the truly scarce factor makes registration irrelevant at best– Limited (or negative) impact on investment– Increased rather than reduced transaction cost through a parallel system – Registration of group rights can avoid this if

• Membership & management structure clearly defined and transparent• Options for transition (e.g. via majority vote) available

Potential limitations I• Weak or absent state institutions for enforcement of rights

– Inability to enforce rights against individuals or the state• State’s commitment to desist from expropriation not credible• Inability to prevent opportunistic behavior by individual parties

– Potentially dangerous if existing institutions are displaced

• Corruption & bad governance undermine registry info– Asymmetric access to information facilitates land grabs – Neglect and de facto elimination of secondary rights – Fraudulent records, corruption in registry introduce ambiguity– Poor will be adversely affected & suffer most

• Relative land abundance – Neglect of the truly scarce factor makes registration irrelevant at best– Limited (or negative) impact on investment– Increased rather than reduced transaction cost through a parallel system – Registration of group rights can avoid this if

• Membership & management structure clearly defined and transparent• Options for transition (e.g. via majority vote) available

Potential limitations II • Market imperfections & lack of liquidity

– Credibility of liquidation threat & lack of viable projects in poor neighborhoods– Risk rationing & fear of loss of collateral– Access to information & land speculation

• Relevance & cost-effectiveness of first registration – High cost due to institutional inefficiency or overdone survey standards – Nature of rights registered (e.g. tenants in Uganda)– Range of costs from US $ 1 to > US $ 60 per parcel; standardization needed

• Reversion to informality due to follow-up registration cost – Deed vs. title registration systems: State guarantee & cost– Transfer taxes & registry overheads– Cost > 5% of land value in 53% of countries; > 10% in 24%– Led to semi-formal systems in some cases

Potential limitations II • Market imperfections & lack of liquidity

– Credibility of liquidation threat & lack of viable projects in poor neighborhoods– Risk rationing & fear of loss of collateral– Access to information & land speculation

• Relevance & cost-effectiveness of first registration – High cost due to institutional inefficiency or overdone survey standards – Nature of rights registered (e.g. tenants in Uganda)– Range of costs from US $ 1 to > US $ 60 per parcel; standardization needed

• Reversion to informality due to follow-up registration cost – Deed vs. title registration systems: State guarantee & cost– Transfer taxes & registry overheads– Cost > 5% of land value in 53% of countries; > 10% in 24%– Led to semi-formal systems in some cases

Potential limitations II • Market imperfections & lack of liquidity

– Credibility of liquidation threat & lack of viable projects in poor neighborhoods– Risk rationing & fear of loss of collateral– Access to information & land speculation

• Relevance & cost-effectiveness of first registration – High cost due to institutional inefficiency or overdone survey standards – Nature of rights registered (e.g. tenants in Uganda)– Range of costs from US $ 1 to > US $ 60 per parcel; standardization needed

• Reversion to informality due to follow-up registration cost – Deed vs. title registration systems: State guarantee & cost– Transfer taxes & registry overheads– Cost > 5% of land value in 53% of countries; > 10% in 24%– Led to semi-formal systems in some cases

Evidence on impacts I • Governance & admin. efficiency

– Legal change improved scope for enforcement in democratic settings in China– Impact on beneficiaries’ attitudes and beliefs in Buenos Aires– Perceived threat of uncompensated expropriation reduced in Ethiopia

• Land-related investment– Doubling of likelihood of soil conservation in Uganda– House renovations & standards in urban Peru/Argentina– Higher level of perennials & off-farm participation in Vietnam – More investment with high marginal returns for full title in Nicaragua– Higher investment in Ethiopia shortly after certification

• Enforcement effort & gender equality – Labor market participation due to less need to guard house in Peru– Lower fertility due to female empowerment via titling– More spending on education in Buenos Aires

Evidence on impacts I • Governance & admin. efficiency

– Legal change improved scope for enforcement in democratic settings in China– Impact on beneficiaries’ attitudes and beliefs in Buenos Aires– Perceived threat of uncompensated expropriation reduced in Ethiopia

• Land-related investment– Doubling of likelihood of soil conservation in Uganda– House renovations & standards in urban Peru/Argentina– Higher level of perennials & off-farm participation in Vietnam – More investment with high marginal returns for full title in Nicaragua– Higher investment in Ethiopia shortly after certification

• Enforcement effort & gender equality – Labor market participation due to less need to guard house in Peru– Lower fertility due to female empowerment via titling– More spending on education in Buenos Aires

Evidence on impacts I • Governance & admin. efficiency

– Legal change improved scope for enforcement in democratic settings in China– Impact on beneficiaries’ attitudes and beliefs in Buenos Aires– Perceived threat of uncompensated expropriation reduced in Ethiopia

• Land-related investment– Doubling of likelihood of soil conservation in Uganda– House renovations & standards in urban Peru/Argentina– Higher level of perennials & off-farm participation in Vietnam – More investment with high marginal returns for full title in Nicaragua– Higher investment in Ethiopia shortly after certification

• Enforcement effort & gender equality – Labor market participation due to less need to guard house in Peru– Lower fertility due to female empowerment via titling– More spending on education in Buenos Aires

Evidence on impacts II• Land values

– Capture present value of benefit stream from land– 23% self-assessed in Ecuador; 30% in Nicaragua, 58% in Philippines 73% in

Indonesia but only 6% in Madagascar

• Land market operation – Tendency to rent out in Guatemala (+63% w. full security)– Higher propensity to rent out to non-relatives in Vietnam– Land market participation by females in Ethiopia

• Use of land as collateral for credit – Significant effects in Paraguay; only for larger producers– Still considerable rationing in Peru (foreclosure)– Signaling in Thailand – No effect in Buenos Aires – Credit-related benefits in developing countries may be overstated

Evidence on impacts II• Land values

– Capture present value of benefit stream from land– 23% self-assessed in Ecuador; 30% in Nicaragua, 58% in Philippines 73% in

Indonesia but only 6% in Madagascar

• Land market operation – Tendency to rent out in Guatemala (+63% w. full security)– Higher propensity to rent out to non-relatives in Vietnam– Land market participation by females in Ethiopia

• Use of land as collateral for credit – Significant effects in Paraguay; only for larger producers– Still considerable rationing in Peru (foreclosure)– Signaling in Thailand – No effect in Buenos Aires – Credit-related benefits in developing countries may be overstated

Evidence on impacts II• Land values

– Capture present value of benefit stream from land– 23% self-assessed in Ecuador; 30% in Nicaragua, 58% in Philippines 73% in

Indonesia but only 6% in Madagascar

• Land market operation – Tendency to rent out in Guatemala (+63% w. full security)– Higher propensity to rent out to non-relatives in Vietnam– Land market participation by females in Ethiopia

• Use of land as collateral for credit – Significant effects in Paraguay; only for larger producers– Still considerable rationing in Peru (foreclosure)– Signaling in Thailand – No effect in Buenos Aires – Credit-related benefits in developing countries may be overstated

Conclusion • Main findings

– Strong tenure security & investment effects under appropriate circumstances– Some effect on land markets, especially rental– Credit impact in developing countries more limited than often believed

• Gaps in the literature – Strong emphasis on rural, individual (rather than group) rights– Little study of interactions (upgrading, legal knowledge, biz training, LUP)– Costs rarely compared to benefits– Limited emphasis on governance, land in post conflict, state land management

• Scope for using ongoing interventions to assess – (Credit) effects in urban areas– Options for financing & cost recovery by local governments (bonds)– Productivity/welfare/diversification effect of market activation– Impact & dynamics of group vs. individual rights – Extreme positions on either side not warranted

Conclusion • Main findings

– Strong tenure security & investment effects under appropriate circumstances– Some effect on land markets, especially rental– Credit impact in developing countries more limited than often believed

• Gaps in the literature – Strong emphasis on rural, individual (rather than group) rights– Little study of interactions (upgrading, legal knowledge, biz training, LUP)– Costs rarely compared to benefits– Limited emphasis on governance, land in post conflict, state land management

• Scope for using ongoing interventions to assess – (Credit) effects in urban areas– Options for financing & cost recovery by local governments (bonds)– Productivity/welfare/diversification effect of market activation– Impact & dynamics of group vs. individual rights – Extreme positions on either side not warranted

Conclusion • Main findings

– Strong tenure security & investment effects under appropriate circumstances– Some effect on land markets, especially rental– Credit impact in developing countries more limited than often believed

• Gaps in the literature – Strong emphasis on rural, individual (rather than group) rights– Little study of interactions (upgrading, legal knowledge, biz training, LUP)– Costs rarely compared to benefits– Limited emphasis on governance, land in post conflict, state land management

• Scope for using ongoing interventions to assess – (Credit) effects in urban areas– Options for financing & cost recovery by local governments (bonds)– Productivity/welfare/diversification effect of market activation– Impact & dynamics of group vs. individual rights – Extreme positions on either side not warranted