1. TENURE INSECURITY AND PROPERTY INVESTMENTS OF SMALLHOLDERS IN RURAL AND URBAN MOZAMBIQUE: EVIDENCE FROM TWO BASELINE SURVEYS Raul Pitoro, Songqing Jin, Mywish Maredia, and Gerhardus Schultink Michigan State University (MSU), USA Paper prepared for presentation at the “2015 WORLD BANK CONFERENCE ON LAND AND POVERTY” The World Bank - Washington DC, March 23-27, 2015 (Funding support provided by the Millennium Challenge Corporation, USDA/FAS and MSU)

2. OUTLINE BACKGROUND AND MOTIVATION DATA EMPIRICAL MODELS RESULTS CONCLUSIONS AND POLICY IMPLICATIONS

3. BACKGROUND AND MOTIVATION Perceptions that secure property rights lead to increased investments and land values; HOWEVER, empirical research on this linkage has not been conclusive; Positive: more manure was allocated to owned rather than borrowed plots (Gavian and Fafchamps, 1996) Negative: land insecurity influences the decisions to grow trees but not the number of trees (Makonnen, 2009); Deininger and Jin,2006); No effect: Adoption of conservation measures not related to perceptions of tenure (Amsalu and de Graaff, 2007); Mixed effect: land tenure variables had different effects for the two types of investments (adoption of stone terraces and soil bunds) (Gebremedhin and Swinton, 2003);

4. ISSUES Methodological approaches – Probit and logit models (most common) – Intensity of investment (less common) – Lump-sum investments (short vs long-term) – Reversal causality ignored in most cases – Failure to control for farmers and local specific characteristics Measurement of tenure security – risk of expropriation (Makonnen, 2009); – current tenure status of the parcels (Abdulai et al., 2011) – Perceived Risk (Gebhru, 2012) Data used sample size – Panel data (few studies) – Cross-section (most common)

5. Our contribution 1.Cross-section data with large sample size 2.Use alternative measures of tenure security 3.Long-term property-related type of investment 4.Estimate both propensity and intensity of investments 5.Estimate drivers of land values

6. OBJECTIVES Aims to test if high tenure security leads to high investments and land values: 1.What drives the demand for property rights (DUAT)? 2.What is the effect of tenure security on property investments? 3.What is the effect of tenure security on land values?

7. Rural (1,417 HHs/ 5,216 parcels Rural (1,417 HHs/ 5,216 parcels Urban (1,690 HHs /3,992 parcels ) Urban (1,690 HHs /3,992 parcels ) Baseline surveys conducted by Michigan State University & Ministry of Agriculture Source: Maredia et al. (2012); Jin et al. (2013)

8. CONCEPTUAL FRAMEWORK Theory of Change:  High tenure secure  Increase investment  Increase Land values Perceived risks: – Concern about future conflict – Fear of losing land Actual rights (Focus of this presentation): – Length of possession – Modes of acquisition – Perceived ability to transact – Lack of documentation – Perceived ability to use and transact land

9. EMPIRICAL MODEL - I PERCEIVED RISKS MODELS: R hi : Perceived risk (future conflict and fear of losing land) on parcel i belonging to household h; X hi : interactions of household characteristics and tenure; P hi : vector of parcel characteristics; T hi : vector of tenure security measures (objective rights); Q hi : vector of pre-existing stock of investments; V : locational dummies; ν hi : error term assumed to be i.i.d. Probit HH has multiple parcels  Household Fixed-effects (HH-FE) employed

10. DEMAND FOR LAND USE RIGHTS MODEL: WTP hi : willingness to pay for land registration of parcel i belonging to household h; X hi : interactions of household characteristics and tenure; P hi : vector of parcel characteristics; T hi : vector of tenure security measures (objective rights); Q hi : vector of pre-existing stock of investments; V : locational dummies; ε hi : error term assumed to be i.i.d. Probit Heckman selection model employed

11. EMPIRICAL MODEL - II PROPERTY INVESTMENT MODELS I hi : Investments in the parcel i belonging to household h; X hi : interactions of household characteristics and tenure; P hi : vector of parcel characteristics; T hi : vector of tenure security measures (objective rights); Q hi : vector of pre-existing stock of investments; V : locational dummies; π hi : error term assumed to be i.i.d. Probit model Heckman selection

12. EMPIRICAL MODEL - III LAND VALUES MODELS: L hi : indicators of land values (sales and rental); X hi : interactions of household characteristics and tenure; P hi : vector of parcel characteristics; T hi : vector of tenure security measures (objective rights); Q hi : vector of pre-existing stock of investments; V : locational dummies; OLS estimation HH-FE employed

13. HYPOTHESES TESTED 1.Tenure insecurity increases risk of being in conflict or losing land: H 0 : α 2 =0; Ha: otherwise; 2.Tenure insecurity increases demand for land use rights: H 0 : β 2 =0; Ha: otherwise; 3.Tenure insecurity is constraint on land related investments: H 0 : θ 2 =0; Ha: otherwise; 4.Tenure insecurity decreases land values H 0 : λ 2 =0; Ha: otherwise; Assumption: Tenure security (T), is a proxy for land reform investments  positive effect suggests a high returns to investments on land reform.

14. DESCRIPTIVE RESULTS

18. ECONOMETRIC RESULTS - I

21. Demand for Land use rights Length of possession is positively correlated with higher demand for DUAT in urban areas; Formal and market-based modes of acquisition increases likelihood of obtaining DUAT; Large parcels users are more likely to seek DUAT, however the cost decreases with size; Parcels with pre-existing investments are less likely to search for DUAT; Parcels mainly used for agriculture are less likely to search for DUAT compared to those used for residential; The willingness to obtain DUAT increases with the ability to use and transact, especially for female-headed households; The risk of land conflicts decreases with the ability to use and transact, while the risk of losing land decreases with the increased length of possession;

22. ECONOMETRIC RESULTS - II

26. Drivers of investments Recently acquired parcels are more likely to receive new investments than older ones; The perceived ability to use and transact land has negative effect on investment in construction; Investments does not vary based on the modes of land acquisition and lack of documentation; Investments are more likely to occur in parcels located in areas with access to a mobile network than those in more remote areas.

27. ECONOMETRIC RESULTS - III

29. Drivers of land values In Urban areas, hypothetical sales values decrease with the ability to use and transact and lack of documentation. In urban areas, the hypothetical sales values increases with ability to use and transact land, number of buildings, and accessibility; Formal and market-led modes of land acquisition are positively associated with higher land values Access to water source and mobile networks have a significant effect on land values

30. CONCLUSIONS URBAN AREAS: 1.Length of possession, the ability to use and transact, formal and market-led modes of acquisition increases the demand for DUAT; 2.Length of possession is negatively associated with the hypothetical rental values; 3.Length of possession decreases the perceived land loss while the ability to use and transact decreases the perceived future land conflict; 4.The ability to use and transfer land decreases the propensity to invest and hypothetical sales values; 5.Lack of documentation reduces the hypothetical sales values; 6.The formal and market-led modes of acquisition are positively associated with rental values;

31. RURAL AREAS: 1.The ability to use and transact decreases the demand for DUAT and decreases the perceived future land conflict and propensity to invest. But, is positively associated with the hypothetical sales value; 2.The market-led modes of acquisition are positively associated with hypothetical sales values; 3.The length of possession is negatively associated with propensity to invest

32. THANK YOU. MINAG/MSU MCA/MCC