Securing Property Rights: Evidence from China

1
Securing Property Rights Evidence from Chinas
Rural Land Contracting Law and Indias Land Reform
Klaus Deininger and Songqing Jin
2
Motivation for Security Land Rights

• Importance for development
• Determine investment incentives efficiency of
  resource use
• Factor market development
• Credit access and insurance substitute
• Reduce conflicts
• Lack of such institutions often hurts the poor
  disproportionately
• Empirical support Importance of property rights
• Similar jurisdictions w difft institutions
  Colonization policies across countries
  different land policies within India.
• Firm level data from Eastern Europe China
• Household level analysis finds a significant link
  between property rights and investment.
• But, little evidence on institutional change
• Adoption of good institutions far from automatic
• Powerful interests can forestall beneficial change

3
Legal context in China

• From collectivization to Household responsibility
• Collectivization in 1950s and 60s, disastrous
  consequences
• Re-establishment of individual farming 1978 with
  big impact
• But tenure remained highly insecure
• Post-1978 measures to increase tenure security
  
• Extension of 15-year to 30-year contracts in 1998
• Issuance of written certificates
• Limited impact on tenure security
• Key problem Unchecked power of local officials
  
• Ability to reallocate land source of corruption
• Over-conversion of land to provide resources
  for local government
• Source of conflicts and riots
• Exacerbated by conflict of interest (leaders also
  resolve dispute)
• Key provisions of the RLCL (March 2003)
• Puts transferable 30-year land contracts on legal
  basis
• Prohibits large reallocation, clear conditions
  for small one (Art. 27)
• Clarifies that the collective can not take land
  from individual users without providing
  compensation determined by agricultural
  production (Art. 16)
• Makes it possible to redress for violations
  through the courts rather than only through
  administrative means.

4
Objectives of Chinas RLCL study

• Two indicators used for the analysis
• Whether or not a reallocation in contravention of
  the law (illegal reallocation) did occur and
• The amount of compensation received by households
  whose land was subject to expropriation, e.g.,
  for infrastructure or private commercial use.

5
Hypotheses on impact of RLCL

• Will strengthen property rights in two dimensions
• General security against internal redistribution
• Amount of compensation in case of land
  taking/expropriation
• More effective if leaders are elected
• Re-election increases leaders accountability
  (repeated game)
• Puts limits on amount of rent to be extracted
• Will help with implementation of legal reform
• Knowledge of law important for effects to
  materialize
• Ability to assert rights also depends on
  knowledge
• Dissemination efforts by higher level governments
  

6
Data sources

• Two rounds of survey NBS sample villages
• First round 2003 1,200 villages 12 questions
  for households
• Follow-up in 800 villages in 2005
• Household survey
• Quiz (8 questions) on knowledge of law Leader
  10 farmers
• Up to 4 households affected by land
  takings/expropriation
• Amount of compensation paid ( other party) in
  case of taking
• Key variables (2 periods)
• Illegal land reallocation Compensation paid in
  case of taking
• Village institutional conditions income
  reallocations from 1999
• Households knowledge of law, availability of
  certificate
• Characteristics of land process in case of
  expropriation

7
Estimation strategy (China)

• Illegal reallocation at village level (j)
• Rjt or Ajt a ßDt ?Gj d(Dt?Gj) ?Kj ?Tj
  ?Ej ?Pjej
• Rjt 1 if illegal reallocation occurred during
  period t, 0 otherwise
• Ajt area affected by illegal reallocation
  during period t
• D reform dummy G elections K Knowledge T
  certificate E village characteristics
• Compensation at plot level
• Cijt a ßDt Ej d (Dt?Gj) ej
• Cijt level of compensation for plot i that was
  acquired away in period t
• Other variables include plot, household, village
  characteristics to capture quality of land, type
  of takings, local economic condition and other
  factors that potentially determine Cijt
• Endogeneity of elections
• Mandatory since 1998 but not implemented
  everywhere
• Can depend on unobserved factors affecting
  reallocation
• Issue discussed in other studies (Lin et al.
  Zhang et al.)
• Instruments Previous leaders length of tenure
  (also squared interacted with reform dummy)

8
Village characteristics
Total N, NW Coast Center SW
Households 427 507 327 423 439
Agric. () 78.61 80.20 51.02 86.91 90.14
Income pc (Y) 2989 2940 4596 2525 1983
Land pc (Mu) 1.24 1.89 0.97 1.17 0.94
Vill. inc. (10,000 Y) 22.41 15.66 58.25 9.55 4.87
From land () 36.53 38.97 37.16 10.47 45.59
Election () 70.18 70.11 75.72 64.89 68.16
Certificates () 82.81 66.50 86.86 84.36 93.04
Know big r. (leader )a 53.41 67.93 38.73 39.36 58.74
Know small (leader ) 17.80 13.04 17.34 25.53 18.83
Know big r. (farmer )a 53.31 65.52 40.26 33.51 60.78
Know small r. (farm. )a 19.32 19.62 23.66 26.49 12.90
9
Admin. reallocations
Total N, NW Coast Center SW
Reall. after 2000 () 28.67 31.50 40.32 23.23 19.41
Area affected (mu) 745.74 1417.57 382.21 655.02 443.56
HHs affected 151.9 221.6 115.0 137.3 131.7
Before RLCL 13.18 13.78 18.96 12.11 8.69
After RLCL 8.31 10.27 9.89 6.32 6.36
Illegal before RLCL 6.15 5.75 12.10 4.04 2.74
Illegal after RLCL 3.46 4.00 6.99 1.01 1.27
Reason population () 45.42 43.48 47.78 50.00 41.51
Reason taking () 24.88 22.22 22.67 13.64 37.78
10
Takings aggregate
Total N, NW Coast Center SW
Villages () 29.47 19.10 40.56 19.00 34.18
HHs affected 88.14 94.51 116.87 52.05 65.24
Before RLCL () 16.59 10.38 23.08 12.39 17.60
After RLCL () 22.52 13.68 31.62 16.81 23.97
Infrastructure () 51.39 52.94 35.94 48.48 69.37
Jobs generated () 28.01 30.71 31.43 26.32 24.33
Project completed 65.84 72.55 59.84 81.82 64.86
Project started 88.54 94.12 79.69 96.97 93.69
Linked to reall. () 27.95 35.29 18.75 48.48 29.09
Money comp. () 82.37 72.44 82.08 89.47 85.88
Y/mu before RLCL 13177 6056 21805 4881 8988
Y/mu after RLCL 17557 7627 28463 7648 11640
Vill. retains some 39.01 31.37 59.38 42.42 18.02
11
Takings Household level
Total N, NW Coast Center SW
Area lost (mu) 1.23 1.52 1.33 1.06 1.05
Net inc.(Y/mu) 781 526 1148 616 639
Received () 82.37 72.44 82.08 89.47 85.88
Received land () 41.25 51.18 35.24 35.09 42.59
Y/mu before RLCL 6642.2 4258.7 7272.1 2655.3 7669.4
Y/mu after RLCL 8949.8 5649.8 11642 5003.3 9154.0
Welfare improved 22.91 19.69 12.04 31.58 31.66
compn 16.77 30.77 18.42 19.05 10.98
. job 55.69 50.00 63.16 52.38 54.88
Welfare worsened 18.36 24.41 19.91 10.53 15.83
compn 60.00 62.86 50.91 33.33 75.61
. compn other 40.00 37.14 49.09 66.67 24.39
12
Dets of illegal reallocation (IV)
Probit Tobit
Reform dummy (ß) 0.088 3.410
Leaders elected (?) -0.048 -6.262
ElectionReform dummy (d) -0.126 -9.415
Leaders knowledge of law -0.019 -2.735
Share of households w. certificate -0.011 -1.486
Village per capita income -0.004 0.364
Share of agricultural income 0.017 2.022
ß d -0.038 -6.041
Wald test of exogeneity, chi2(2) 3.31 0.85
13
Dets of compensation levels
OLS IV_Tobit
Value of production (Y/mu) 0.639 0.711
Land next to nat./prov. road 1.127 1.556
Share of land received -2.329 -2.562
Village income (log) 1.916 1.806
Reform dummy (a) 1.016 -0.017
Public land use dummy (s) -1.781 -1.305
Public land useReform dummy (d) 1.509 0.662
Share with certificates 0.810 1.179
Leaders elected (ß) 1.433 4.279
Election Reform dummy (?) 0.130 1.939
ß ? 1.563 1.922
sd 0.272 -0.643
Wald test of exogeneity, chi2(2) 1.61
14
Key findings

• While RLCL can not slow down the pace of land
  takings, it however significantly increased the
  amount of compensation paid to households for the
  loss of land
• RLCL is effective in reducing illegal
  reallocation and raising the amount of
  compensation only if the officials are elected,
  pointing towards complimentarity between good
  governance and legal reform.
• RLCL also helped to eliminate the discrimination
  against public takings
• Knowledge of law is negatively related to illegal
  reallocation
• In terms of land value, reform would be predicted
  to increase land values by slightly more than 30
  in areas where leaders are elected.

15
Broader relevance

• Long-term impacts
• Investment, intensity of land use and
  agricultural productivity
• market development, contract types, change in
  farm size, etc.
• Impact on labor markets
• Participation in local non-farm labor markets and
  migration
• Economics crisis
• Role of land in farmers ability in copying with
  crisis
• Does property rights reform help or hurt the poor
  during the crisis?