Academic journal article The Journal of Developing Areas

Land Title, Tenure Security, Investment and Farm Output: Evidenc from Guatemala1

Academic journal article The Journal of Developing Areas

Land Title, Tenure Security, Investment and Farm Output: Evidenc from Guatemala1

Article excerpt


Having a title to land can be associated with increased farm output for two distinct reasons. On the one hand, access to credit may require the use of land, to which there is secure title, as collateral. The classical channel through which title affects output, however, is by increasing the landholders' tenure security and, thus, the incentive to make investments tied to the land, whether credit financed or not. The article uses household level data from Guatemala that control for the credit access channel and isolate the effect that titles are found to have higher output and yield. This can be explained as the result of greater willingness to invest family labor in the present so as to generate higher future output due to greater tenure security. Using ordered probit analysis, I find that having title substantially increases the probability that households perform quality labor tasks which are associated with higher output levels.

JEL Classifications: O12, O54, P14, Q12, Q15

Keywords: Land title, Tenure security, Property rights, Farm households, Probit analysis

(ProQuest-CSA LLC: ... denotes formulae omitted.)


That land tenure security is needed to facilitate the highest and best use of land resources is hardly controversial. A stronger view is that individual ownership evidenced through fee-simple title is the ideal institutional vehicle for such security. There is empirical evidence that having a title is associated with higher levels of both investment tied to the land and farm output [Sala et al., 1970; Feder and Onchan, 1987; Feder 1987]. The direct way in which title can positively affect investment and output is referred to here as the tenure security channel. To quote Jeremy Bentham-"command cultivation, you will have done nothing; but secure to the cultivator the fruits of his labor, and you have probably done enough."2 While the tenure security channel is noted in the modern literature [e.g. Raup, 1967], it can be overshadowed by what is referred to here as the credit access channel. Binswanger and Rosenzweig [1986] emphasize those attributes of land that make it ideally suited as loan collateral. Access to formal credit may require title before land can be used as collateral, and there is empirical evidence of a positive association between title and access to credit [Dorner and Saliba, 1981; Seligson, 1982; Feder et al., 1986]. In many less developed countries, however, systems for titling land are deficient. Small holders, in particular, may find that the cost of acquiring a title to their land is prohibitive. Land titling programs have been undertaken in several less developed countries on the argument that having title can lead to increased investment and output [Stanfield, 1985].

If titles are essential for rural credit markets to operate, increased titling could lead to increased output through the credit access channel. But informal rural credit markets, by definition, operate in the absence of such formalities as titles. In a study using data from Thailand, Feder [1987, p.29] concludes that "access to institutional credit ... appears as the dominant factor underlying the productivity gap between titled and untitled farmers." The positive association between title and output failed to appear, however, in one locale where "the non-institutional credit market, where collaterals and titles are less important, is well developed [p 26]." A study of small coffee producers in Honduras found that titling did not have the intended effect of increasing access to credit and, hence, investment, due to institutional factors [Larson et al., 1999].

This paper uses data that control for the credit access channel and thus isolate the effects that title has on investment and output through the tenure security channel. The data are from a survey of participant households in a land program in Guatemala.3 Using a fund for land purchase provided by a foreign aid donor, a local NGO purchased several large farms (fincas), subdivided them into numerous small parcels, and sold them to landless or nearly landless households. …

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