Land property rights and resource misallocation: evidence from land certification programmes in Nigeria, Ethiopia, and Tanzania

Well-defined and secure property rights over land play an important role in the socio-economic well-being of agricultural households. Using a farm household-level panel dataset, the Living Standards Measurement Study-Integrated Surveys on Agriculture (LSMS-ISA), across three sub-Saharan African countries (Nigeria, Ethiopia, and Tanzania), we examine whether and the extent to which misallocation is associated with property rights, and whether improved land property rights contribute to more efficient factor allocation. Our findings reveal that operated land size and capital are essentially unrelated to farm Total Factor Productivity (TFP), implying substantial frictions in both land and capital markets. These frictions, which result in the misallocation of productive resources, are linked with land institutions that disproportionately constrain the more productive farmers. Moreover, ensuring land security through land certificates leads to the reallocation of land and capital to more efficient farms with positive aggregate effects. Land property rights through the issuance of land certificates facilitate rentals and reduce misallocation, which in turn enhances agricultural productivity. Furthermore, our research indicates that land certificates change the likelihood of households remaining in agriculture, meaning that families who obtained a certificate are more likely to have a household member switching to non-agricultural activities. Our findings suggest that the establishment of decentralised and secure property rights would not only generate large productivity gains but also provide farmers with sufficient incentives to make decisions that enhance the efficiency of resource allocation.