--Evidence from China Longyao Zhang1 Wenli Cheng2 Bi Wu3

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Presentation transcript:

Effects of Land Rights Certification on Rural Credit Market and the Market for Land Transfer --Evidence from China Longyao Zhang1 Wenli Cheng2 Bi Wu3 1 College of Finance, Nanjing Agricultural University, China 3 Department of Economics, Monash University, Australia 3 RCRE, Ministry of Agriculture of China, China 22 March 2017

Why property rights are important? Introduction Why property rights are important? Better property rights institutions lead to improved economic outcomes (see North and Thomas,1973; Knack and Keefer,1995; and Acemoglu, Johnson, and Robinson, 2001). De Soto (2000) have argued that the major barrier to prosperity in developing countries is the inability to convert property into usable assets, because of a lack of clear-cut legally recognized rights. According to Deininger and Jin (2006), the theoretical effect of an improvement in the security of land-rights includes: Providing stronger incentives for long-term investment Promoting land transfers to more efficient producers Improving access to credit …

Land titling programs in developing countries since 1980s Introduction Land titling programs in developing countries since 1980s Land titling is increasingly considered one of the most effective public policies to benefit poor populations and encourage economic growth. The World Bank and governments have sponsored various programs to systematically register land or to improve land administration in many countries. Asia: Thailand (distribute 8.7 million land titles since early 1980s); Vietnam (issue land titles since 1993); Indonesia (1.87 million land titles , 1996-2000)… Latin America: Peru (the largest urban titling program aimed at squatters, 1.2 million titles, in 1990s); Brazil (title 750,000 families, since 2003)… Africa: Uganda (transition from customary to titled freehold landownership, the Land Act of 1998); Rwanda (land tenure regularization program, deliver titles for all land parcels by 2013)…

The importance of issuing titles to land is inconclusive. Introduction The importance of issuing titles to land is inconclusive. The evidence on the impacts of land title on credit access is not clear: Positive effect: Feder et al. (1986) and Feder (2002) in Thailand; SMERU Research Team (2002) in Indonesia; Petracco & Pender (2009) in Uganda; Piza et al. (2016) in Brazil No effect: Boucher et al. (2005) in Nicaragua & Honduras; Field & Torero (2004) in Peru; Galiani & Schargrodsky (2006) in Buenos Aires; Do & Iyer (2008) in Vietnam; Ali et al. (2014) in Rwanda Conditional positive effect: Carter & Olinto (2003, AJAE) in Paraguay, wealthier producer with land > 15ha; Besley et al. (2012, QJE) in Sri Lanka, nonlinear and heterogeneous by wealth group, and the extent of competition between lenders, the de soto effect

Introduction The potential reasons for mixed empirical evidence of the impact of land titling on credit access: Demand side: risk aversion and risk rationing of the agricultural producers (Boucher et al., 2008 AJAE) Supply side: small land scale and high transaction costs; lack of political and legal environment and make foreclosure virtually impossible; lack of a liquid market to dispose of collateral (Deininger, 2003)

China’s land reform since 1978 Introduction China’s land reform since 1978 Historical reforms since 1978 Household Responsibility System in 1982, land use contracts were for 15 years in 1984. The term was extended to 30 years in 1998. The Law on Land Contract in Rural Areas in 2002 granted four rights to the household: the right to transfer, exchange, rent and subcontract Land titling reform since 2011 Under the Property Law adopted in 2007, rural land use rights are property rights to be registered as immovable, which provided impetus for the Ministry of Agriculture to implement further land titling reforms beginning in 2011 Land titling provides legal verification of households land rights Permission to use land rights as collateral Reforms are implemented at the level of selected villages. Land titling proceeds village by village and applies to all households in the selected villages

China’s land titling reform since 2011 Introduction China’s land titling reform since 2011 Left: Graphical part of village land parcel Right: Farms put fingerprint on the land titling map (Taogouqiao village in Shandong)

Introduction Research question In this paper, we use a new data set to address an old and basic question, namely: how an improvement of land-rights security can affect household credit access and land transfer in rural China? More specifically: How the recent rural land titling experiment in some pilot areas of China has affected households’ ability to obtain credit, both formal and informal credit? How the recent rural land titling experiment in some pilot areas of China has affected households’ land rental activities, both renting in and renting out land?

Empirical challenges and strategies Identification issues Introduction Empirical challenges and strategies Identification issues The problem of the counterfactual If we simply compare outcomes with only a point observation after the treatment, then it is impossible to reach a conclusion about the impact and cannot attribute causal impact of the program Need for a proper comparison group (treated and non-treated groups)!!! The problem of the selection bias Treated and Non-treated groups might not be the same pre-intervention. So expected difference between groups might not be solely because of the intervention.

Empirical challenges and strategies Introduction Empirical challenges and strategies Taking the gradual implementation of land titling in China as a natural experiment Using the difference-in-differences (DID) approach to estimate the impact of land rights certification, by comparing the difference between 2010 and 2015 (before and after the reform) for treatment groups as compared to control groups Treatment groups: villages that have implemented policy experiment of land titling Control groups: villages that are geographical similar but not running the policy experiment of land titling Selection bias test: whether there are any observable systematic differences between treatment villages and control villages?

Data Introduction Data Empirical analysis Conclusion

Data Introduction Data Empirical analysis Conclusion

Annual survey by Research Centre for Rural Economy (RCRE), the MOA Data Annual survey by Research Centre for Rural Economy (RCRE), the MOA Annual national survey at both rural household and village levels in 31 provinces; known as Fixed Rural Observation Point System (FOPS) FOPS annual survey began in 1984, but 2010 and 2015 selected Panel data covers 23,000 rural households from 360 villages of 31 provinces Supplementary survey in 2015 to FOPS, RCRE and NAU Conducted in December, 2015 to January, 2016 Villages which are allocated both in the national experiment areas for rural land reforms and within the FOPS----Treatment villages Within the FOPS other villages which are geographically similar to the treatment villages but were not running the experiment---- Control villages

Data The distribution of treatment and control villages in 2010 and 2015 The dataset covers 40 villages in 36 counties of 17 provinces, and includes 1,938 households for 2010(before), 2,073 households for 2015(after).

Empirical analysis Introduction Data Empirical analysis Conclusion

Table 1. Village characteristics differences in 2010 Empirical analysis 1. Testing endogeneity in the assignment of treatment villages Table 1. Village characteristics differences in 2010 Variables All villages Treatment Control Difference N (1) (2) (3) (4)=(2)-(3) Total cultivated land (mu) 3750.36 2882.07 4370.57 -1488.51 36 Per capita cultivated land(mu) 1.68 1.30 1.95 -0.64 Share of land rented out 0.09 0.10 0.08 0.02 Share of labor working outside 0.35 0.40 0.31 Share of grain growing area 0.72 0.60 0.80 -0.20** Per capita net income 5814.39 5467.33 6074.69 -607.35 28 Level of economic development 2.70 2.56 2.81 -0.25 37 Distance from main road 2.01 1.69 2.21 -0.52 33 Share of hardened road 83.84 85.90 82.86 3.04 31 Whether suburban 0.19 -0.00 Whether hosts town government 0.14 Whether poverty village 0.13 -0.02 Terrain: Plain 0.50 0.00 40 Hills 0.32 0.33 Mountainous No. of Observations 18 22

Empirical analysis Pr(Treatment group = 1) Variables (1) (2) (3) (4) (5) (6) (7) ln(Total cultivated land) -0.10 (0.20) -0.04 (0.23) Per capita cultivated land(mu) -0.18 (0.16) -0.13 (0.18) Share of land rented out (2010) 1.20 (1.78) -0.30 (2.06) 0.26 (2.07) Share of labor working outside of village 2.26* (1.23) 1.94 (1.51) 2.03 (1.40) Share of grain growing area -2.35** (1.00) -2.38* (1.39) -2.02 (1.46) Level of economic development -0.41 (0.32) -0.37 (0.33) -0.43 -0.42 (0.35) -0.26 (0.36) (0.38) -0.16 (0.39) Whether suburban (0.66) -0.21 (0.65) 0.04 (0.60) 0.14 (0.71) -0.29 (0.72) -0.32 (0.74) Whether hosts town gov. 0.41 0.48 (0.78) 0.37 (0.68) (0.63) 0.27 (0.75) 0.00 (0.73) 0.05 Whether poverty village -0.24 (0.67) -0.28 (0.64) -0.02 (0.69) -0.07 0.42 0.53 (0.80) 0.56 Terrain: Plain -0.11 0.01 0.36 0.45 (0.70) 0.98 (0.85) 1.12 (0.92) Hills -0.01 0.10 0.16 0.32 (0.83) 0.47 (0.89) Pseudo R2 0.06 0.18 0.19 No. of observations 36 34

Baseline specification(household level) Empirical analysis Baseline specification(household level) : the dependent variable of household in village of province in year Household access to formal credit and informal credit Household land rent-in and rent-out : dummy variable, 0 for year 2010 and 1 for year 2015 : dummy variable, 1 if the village has completed land rights certification and 0 otherwise :Other control variables for observable household and village characteristics

Descriptive Statistics (Household Level) Empirical analysis Descriptive Statistics (Household Level) 2010 Survey 2015 Survey All Titling No titling Diff Mean t-Stat (1) (2) (3) (4) (5) A: Credit access variables Has formal loan 0.03 0.02 0.04 2.900*** Has informal loan 0.06 -2.477** B: Land transactions Rented-in land(mu) 0.85 1.06 0.64 0.99 1.414 Whether land rented in 0.11 0.10 0.15 0.09 -4.200*** Rented-out land(mu) 0.88 2.16 0.92 -0.486 Whether land rented out 0.19 0.42 0.23 0.17 -3.121***

Controls and Province FE Empirical analysis The effects of land rights certification on access to formal credit Dependent variable=1 If household have access to formal credit No Controls Province FE Excluding attrition Households With Controls Controls and Province FE (1) (2) (3) (4) (5) Title×Year 0.398** 0.361* 0.352* 0.534** 0.447* (0.187) (0.212) (0.188) (0.243) (0.249) Year -0.460*** -0.520*** -0.462*** -0.753*** -0.815*** (0.111) (0.135) (0.208) (0.210) Title -0.358*** -0.289 -0.312** 0.013 -0.119 (0.123) (0.125) (0.174) (0.272) Province fixed effects No Yes Prob>Waldchi2 0.000 No. of Observations 4,011 3,130 3,920 3,534 2,835 Robust standard errors in parentheses.

Controls and Province FE Empirical analysis The effects of land rights certification on access to informal credit Dependent variable=1 If household have access to informal credit No Controls Province FE Excluding attrition Households With Controls Controls and Province FE (1) (2) (3) (4) (5) Title×Year -0.570*** -0.549*** -0.537*** -0.618*** -0.625*** (0.184) (0.179) (0.187) (0.202) (0.200) Year -0.184* -0.227** -0.187* -0.330*** -0.356*** (0.106) (0.103) (0.107) (0.127) (0.130) Title 0.250** 0.487*** 0.217** 0.324*** 0.655*** (0.102) (0.131) (0.119) (0.194) Province fixed effects No Yes Prob>Wald chi2 0.000 No. of Observations 4,011 3,806 3,920 3,534 3,251

Empirical analysis Land right certification had the effect of increasing the probability of households obtaining formal credit Increase effective demand for credit and investment Lower the risk of credit and increase loan approval rate Land rights certification reduced the probability of households gaining access to informal credit The increased access to formal credit Positive wealth/income effect

The effects of land rights certification on renting in land Empirical analysis The effects of land rights certification on renting in land Dependent variable=1 If a household has rented-in land at the end of the current year (stock) Dependent variable=1 If a household rented in land during the current year (flow) Dependent variable: Area of rented in land at the end of the current year (stock) Dependent variable: Area of land rented-in during the current year (1) (2) (3) (4) Title×Year -0.270** -0.012 -4.966** -0.704 (0.134) (0.170) (2.137) (2.676) Year -0.195* -0.115 -1.606 -1.518 (0.107) (0.141) (1.793) (2.395) Title 1.007*** 0.521*** 15.601*** 7.835*** (0.148) (0.180) (2.635) (3.008) Province fixed effects Yes Pseudo R2 0.194 0.160 0.109 0.100 Number of observations 3,448 3,163 3552

The effects of land rights certification on renting out land Empirical analysis The effects of land rights certification on renting out land Dependent variable=1 If a household has rented-out land at the end of the current year (stock) Dependent variable=1 If a household rented out land during the current year (flow) Dependent variable: Area of rented out land at the end of the current year (stock) Dependent variable: Area of land rented out during the current year (1) (2) (3) (4) Title×Year -0.233** -0.346*** -1.484** -2.934** (0.105) (0.124) (0.706) (1.213) Year 0.591*** 0.244** 3.811*** 2.306** (0.085) (0.099) (0.602) (0.962) Title -0.142 0.349*** -1.513** 2.748** (0.131) (0.722) (1.292) Province fixed effects Y Pseudo R2 0.210 0.189 0.093 0.113 Number of observations 3,551 3,552

Possible explanations: Empirical analysis Surprising results: negative association between land rights certification and land rental market activities!!! Possible explanations: Omitted variables, such as village land reallocation More willing to rent out to specialized agri producers, such as agri companies , modern farms and agri co-operatives Increase transaction cost of land transfer

Conclusion Conclusion The effects of land rights certification on rural households’ access to credit and land rental market activities in China Land rights certification improved rural households access to formal credit and reduced their reliance on informal credit There seems to be a negative association between land rights certification and households’ participation in both renting out and (to a lesser extent) renting in land

Conclusion More questions raised… How land rights certification has affected (1) households’ demand for credit, (2) the expression of their demand; (3) the extent of rationing in the market for credit; (4) the use of collateral in loan applications? How land rights certification has affected (1) renting out to non-relative, such as agricultural companies, modern farms or rural co-operatives; (2) land transfer after taking the administrative land adjustment into account? (3) the transaction cost of land transfer?