As usual on Fridays, from Raj Nallari and Breda Griffith's lecture notes.
Land Inequalities and Economic Development
Land inequalities have been linked to low levels of economic development with consequent adverse impacts for the poor. The aspects of economic development most associated with unequal distribution of land are education, institutions and finance. The hypothesis is that these elements of the economy do not develop optimally in the face of land inequalities and thus an economy is constrained in its growth potential. In other words, levels of income are lower than what they would be if a more equitable distribution of land prevailed. The theory is quite clear in differentiating between those who own land and those who are landless, yet the empirical work, until recently, failed to make this distinction. Cross country studies using a Gini coefficient to measure the distribution of land within groups of landowners across countries found a:
- negative relationship between land inequalities and institutional development;
- negative relationship between land inequalities and education; and
- negative relationship between land inequalities and financial development.
Erikson and Vollrath (2004) derived a measure of land inequality that took into consideration both landowners and landless individuals for an agricultural population in testing the above hypotheses and found that a significant negative relationship existed between education and land inequality but only for landless individuals. No significant relationship was found using the new measure for land inequalities and institutions and land inequalities and financial development for either landholders or landless persons. The following sections, based on this and other papers examine the literature behind the hypotheses above given their importance and relevance to the economic growth and poverty debate.
Land Inequality and Institutional Development
Engerman and Sokoloff (1997, 2000) first highlighted the negative relationship between institutions and land inequalities. Examining the economic development of Latin America from colonization, they found that initial inequality in land was propagated from vast plantations worked by slave labor leading to an inequality of resources. The inequality of resources led to the development of institutions designed specifically to protect the interests of the elite and hampered economic growth and development. This hypothesis that initial inequality (in land) leading to an inequality in resources and the development of bad institutions was taken up by Easterly (2002) who suggested that the relationship held across time and regions. Easterly and Levine (2003) found that geographic conditions affect growth only through institutions.
Next Friday: Land Inequality and Education / Land Inequality and Financial Development