TENURE INSECURITY AND PROPERTY INVESTMENTS OF SMALLHOLDERS IN RURAL AND URBAN MOZAMBIQUE: EVIDENCE FROM TWO BASELINE SURVEYS Raul Pitoro, Songqing Jin,

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), USAPaper 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)

OUTLINE

• BACKGROUND AND MOTIVATION

• DATA

• EMPIRICAL MODELS

• RESULTS

• CONCLUSIONS AND POLICY IMPLICATIONS

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);

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)

Our contribution

1. Cross-section data with large sample size2. Use alternative measures of tenure security3. Long-term property-related type of

investment4. Estimate both propensity and intensity of

investments5. Estimate drivers of land values

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?

Rural (1,417 HHs/ 5,216 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)

CONCEPTUAL FRAMEWORK• Theory of Change:• High tenure secure

Increase investmentIncrease 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

EMPIRICAL MODEL - I

PERCEIVED RISKS MODELS:

• Rhi : Perceived risk (future conflict and fear of losing land) on parcel i belonging to household h;

• Xhi : interactions of household characteristics and tenure;

• Phi: vector of parcel characteristics;

• Thi: vector of tenure security measures (objective rights);

• Qhi: vector of pre-existing stock of investments;• V : locational dummies;• νhi : error term assumed to be i.i.d.

• Probit• HH has multiple parcels Household Fixed-effects (HH-FE) employed

hihihihihi VQTXR 43210

DEMAND FOR LAND USE RIGHTS MODEL:

• WTPhi : willingness to pay for land registration of parcel i belonging to household h;

• Xhi : interactions of household characteristics and tenure;

• Phi: vector of parcel characteristics;

• Thi: vector of tenure security measures (objective rights);

• Qhi: vector of pre-existing stock of investments;• V : locational dummies;• εhi: error term assumed to be i.i.d.

• Probit• Heckman selection model employed

hikhihiihhi VQTXWTP 43210

EMPIRICAL MODEL - II

PROPERTY INVESTMENT MODELS

• Ihi : Investments in the parcel i belonging to household h;

• Xhi : interactions of household characteristics and tenure;

• Phi: vector of parcel characteristics;

• Thi: vector of tenure security measures (objective rights);

• Qhi: vector of pre-existing stock of investments;• V : locational dummies;• πhi : error term assumed to be i.i.d.

• Probit model• Heckman selection

hihhihihi VQTXI 43210

EMPIRICAL MODEL - III

LAND VALUES MODELS:

• Lhi: indicators of land values (sales and rental);

• Xhi : interactions of household characteristics and tenure;

• Phi: vector of parcel characteristics;

• Thi: vector of tenure security measures (objective rights);

• Qhi: vector of pre-existing stock of investments;• V : locational dummies;

• OLS estimation• HH-FE employed

hihhihihi VQTXL 43210

HYPOTHESES TESTED

1. Tenure insecurity increases risk of being in conflict or losing land:H0: α2=0; Ha: otherwise;

2. Tenure insecurity increases demand for land use rights:H0: β2=0; Ha: otherwise;

3. Tenure insecurity is constraint on land related investments: H0: θ2=0; Ha: otherwise;

4. Tenure insecurity decreases land valuesH0: λ2=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.

DESCRIPTIVE RESULTS

Table 1: Tenure security measures rights and outcomes in urban areas Objective

rights Indicators Perceived Risks Willingness to

pay for DUAT Any investment

Future land

conflict

Fear of losing land

Percent Value per m2 (MZM)

Percent Value per m2 (MZM

Parcel owner for 10 or more

years

No 16.3% 4.7% 85.7% 2.11 19.3% 1.93 Yes 13.7% 3.2% 91.1% 2.00 12.4% 1.31 Diff. * * **

**

Total number of full rights held over the

parcel

0 (Min.) 17.5% 3.6% 87.1% 1.99 14.1% 1.75 6 (Max.) 4.4% 1.2% 95.9% 5.44 11.6% 0.18

Diff. (max., min.) ** + ** **

+ Modes of land

acquisition 1. Other modes of acquisition 13.4% 4.0% 85.2% 1.65 7.3% 1.18 2. Ceded by formal authorities 21.6% 7.1% 94.1% 3.13 17.7% 0.04 3. Purchased parcel 15.1% 3.5% 91.0% 2.30 21.0% 1.89 Diff. 1,2 *

* ** **

Diff.1,3

** ** ** + No any

document No 12.8% 3.2% 91.6% 2.66 18.6% 1.41 Yes 15.8% 4.2% 87.5% 1.63 12.8% 1.64 Diff. *

** ** **

Total 14.7% 3.8% 89.0% 2.04 15.1% 1.55

Table 1 (Continued) Objective

rights Indicators Invested in

construction Hypothetical land

value per m2

Percent Value per m2 (MZM)

Sales value

(MZM)

Rental value

(MZM) Parcel owner

for 10 or more years

No 15.1% 4.79 336.41 11.20 Yes 8.3% 5.79 440.03 12.19 Diff. **

**

Total number of full rights held over the

parcel

0 (Min.) 10.6% 6.36 423.18 11.53 6 (Max.) 8.4% 1.04 426.78 3.14

Diff. (max., min.)

+ Modes of land

acquisition 1. Other modes of acquisition 5.0% 0.74 337.86 9.66 2. Ceded by formal authorities 10.6% 0.00 831.39 31.68 3. Purchased parcel 15.5% 6.52 432.86 12.74 Diff. 1,2 *

** **

Diff.1,3 **

** No any

document No 13.4% 6.10 513.67 16.20 Yes 9.3% 4.48 326.15 8.94 Diff. **

** **

Total 10.9% 5.26 400.30 11.81 Source: Author's computation from the MCA/MINAG baseline survey data, 2010 and 2012 + p < 0.10, * p < 0.05, ** p < 0.01

Table 2: Tenure security measures and outcomes in rural areas Objective rights Indicators Perceived Risks Willingness to pay

for DUAT

Future land

conflict

Fear of losing land

Percent Value per m2 (MZM)

Parcel owner for 10 or more years

No 10.0% 3.2% 89.7% 0.98 Yes 10.4% 3.9% 89.1% 0.72 Diff.

+

Total number of full rights held over the

parcel

0 (Min.) 10.9% 3.8% 90.8% 0.80 6 (Max.) 9.4% 3.8% 93.7% 0.53

Diff. (max., min.)

+ Modes of land

acquisition 1. Other modes of acquisition 10.1% 3.3% 89.4% 0.82 2. Ceded by formal authorities 14.5% 9.0% 67.0% 0.94 3. Purchased parcel 12.5% 8.0% 90.5% 0.34 Diff. 1,2

**

Diff.1,3

**

* No any document No 7.3% 0.4% 75.3% 0.04

Yes 10.3% 4.2% 89.5% 0.91 Diff.

** ** **

Total 10.3% 3.7% 89.3% 0.79

Table 2 (Continued) Objective rights Indicators Any investment Hypothetical land

value per m2

Percent Value per m2 (MZM)

Sales value

(MZM)

Rental value

(MZM) Parcel owner for 10 or more years

No 9.0% 0.04 28.91 4.16 Yes 8.0% 0.14 43.40 22.17 Diff.

**

Total number of full rights held over the parcel

0 (Min.) 8.6% 0.13 37.00 22.31 6 (Max.) 4.4% 0.00 83.21 7.08

Diff. (max., min.) ** + * Modes of land

acquisition 1. Other modes of acquisition 8.6% 0.11 32.77 9.71 2. Ceded by formal authorities 0.0% 0.00 33.12 1.68 3. Purchased parcel 4.2% 0.11 137.63 129.31 Diff. 1,2

Diff.1,3 **

** ** No any document No 4.8% 0.01 3.74 0.10

Yes 8.8% 0.13 45.41 20.31 Diff. ** * **

Total 6.0% 8.3% 39.66 17.52 Source: Author's computation from the MCA/MINAG baseline survey data, 2010 and 2012 + p < 0.10, * p < 0.05, ** p < 0.01

ECONOMETRIC RESULTS - ITable 3: Determinants of demand for DUATs in urban and rural areas Urban Rural Variable Probit Heckman Probit Heckman

HOUSEHOLD FIXED-EFFECTS Parcel acquired in 10 or more years (1=Yes) 0.056** -0.347** -0.005 0.197* (3.32) (-3.86) (-0.36) (2.42) Total number of rights in a parcel (Max.6) 0.017** 0.082** -0.011** -0.041+ (2.85) (3.81) (-3.69) (-1.88) Ceded by formal authorities (1=Yes) (a) 0.075** 0.286 -0.274 0.855+ (5.59) (1.26) (-1.50) (1.68) Purchased infrastr./parcel (1=Yes) (a) 0.039+ 0.183 0.016 -0.292* (1.85) (1.33) (0.86) (-2.35) Parcel with no any documentation (1=Yes) -0.029 -0.156 0.141 -0.069** (-1.52) (-1.33) (1.16) (-6.71) Parcel area in m2 (Log) 0.019** -0.057* -0.001 -0.517** (3.73) (-2.05) (-0.13) (-9.84) Number of buildings in the parcel -0.020** 0.310** 0.003 0.073** (-2.71) (10.42) (0.78) (3.96) Number of Cashew trees in the parcel -0.011** 0.000 -0.002** -0.010** (-2.65) (0.02) (-3.13) (-2.73) Number of coconut trees in the parcel -0.013* -0.051 0.018** 0.016 (-2.41) (-1.55) (2.83) (1.10) (a) Reference is other modes of acquisition which are considered less secure (e.g. gifts, inheritance, occupation, etc.)

Table 4: Determinants of perceived risk of land conflict and loss in urban and rural areas Urban Rural Variable Conflict Loss Conflict Loss

HOUSEHOLD FIXED-EFFECTS Parcel acquired in 10 or more years (1=Yes) -0.009 -0.017+ -0.008 0.007 (-0.50) (-1.78) (-0.60) (1.50) Total number of rights in a parcel (Max.6) -0.023** -0.001 -0.007** -0.002 (-3.37) (-0.45) (-2.63) (-1.42) Ceded by formal authorities (1=Yes) (a) 0.073 0.006 0.105 0.093 (1.05) (0.28) (0.83) (0.83) Purchased infrastr./parcel (1=Yes) (a) 0.029 -0.024* -0.010 0.023+ (1.24) (-2.12) (-0.61) (1.95) Parcel with no any documentation (1=Yes) 0.028 -0.001 0.001 0.028** (1.33) (-0.13) (0.02) (4.86) Parcel area in m2 (Log) -0.001 0.001 0.001 -0.001 (-0.09) (0.46) (0.13) (-0.23) Number of buildings in the parcel 0.005 0.003 0.002 -0.000 (0.69) (1.21) (0.65) (-0.16) Number of Cashew trees in the parcel -0.004 -0.001 0.001 0.000 (-1.03) (-0.46) (1.38) (0.37) Number of coconut trees in the parcel -0.023 -0.012 0.001 -0.001 (-0.91) (-1.34) (0.43) (-0.99) (a) Reference is other modes of acquisition which are considered less secure (e.g. gifts, inheritance, occupation, etc.)

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;

ECONOMETRIC RESULTS - IITable 5: Determinants of propensity of investments in urban and rural areas Construction Any investment Variable Urban Urban Rural

HOUSEHOLD FIXED-EFFECTS Parcel acquired in 10 or more years (1=Yes) -0.005 -0.042** -0.058** (-0.36) (-2.98) (-3.01) Total number of rights in a parcel (Max.6) -0.011** -0.004 -0.007 (-3.69) (-1.09) (-1.31) Ceded by formal authorities (1=Yes) (a) -0.274 -0.007 0.026 (-1.50) (-0.23) (0.48) Purchased infrastr./parcel (1=Yes) (a) 0.016 0.016 0.028 (0.86) (1.10) (1.33) Parcel with no any documentation (1=Yes) 0.141 0.006 0.008 (1.16) (0.47) (0.42) Parcel area in m2 (Log) -0.001 -0.000 0.002 (-0.13) (-0.13) (0.35) Number of buildings in the parcel 0.003 -0.001 -0.002 (0.78) (-0.30) (-0.22) Number of Cashew trees in the parcel -0.002** 0.005+ 0.010** (-3.13) (1.91) (2.81) Number of coconut trees in the parcel 0.018** 0.000 -0.002 (2.83) (0.05) (-0.22) (a) Reference is other modes of acquisition which are considered less secure (e.g. gifts, inheritance, occupation, etc.)

Table 6: Determinants of intensity of investments in urban and rural areas Construction Any investment Variable Urban Urban Rural

HOUSEHOLD FIXED-EFFECTS Parcel acquired in 10 or more years (1=Yes) 0.074 0.084 0.046 (0.50) (0.53) (0.97) Total number of rights in a parcel (Max.6) -0.084* -0.104* -0.026** (-2.02) (-2.36) (-3.26) Ceded by formal authorities (1=Yes) (a) -0.352* -0.482* 0.000 (-2.21) (-2.02) (.) Purchased infrastr./parcel (1=Yes) (a) 0.136 0.162 0.108 (0.97) (0.87) (1.03) Parcel with no any documentation (1=Yes) 0.048 0.189 0.046 (0.26) (1.00) (1.10) Parcel area in m2 (Log) -0.200** -0.076 -0.130* (-4.31) (-1.62) (-2.48) Number of buildings in the parcel -0.025 -0.074 0.006 (-0.43) (-0.98) (0.54) Number of Cashew trees in the parcel -0.031** -0.024* -0.003+ (-4.29) (-2.01) (-1.75) Number of coconut trees in the parcel 0.010 0.036 -0.010 (0.69) (0.78) (-0.42) (a) Reference is other modes of acquisition which are considered less secure (e.g. gifts, inheritance, occupation, etc.)

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.

ECONOMETRIC RESULTS - IIITable 7: Determinants of land values sales values in urban and rural areas (OLS) Urban Rural Variable Sales Rental Sales Rental

HOUSEHOLD FIXED-EFFECTS Parcel acquired in 10 or more years (1=Yes) -0.188 -0.375** -0.035 0.092 (-0.99) (-3.88) (-0.35) (1.16) Total number of rights in a parcel (Max.6) -0.160** -0.021 0.078** 0.032+ (-2.87) (-0.74) (2.97) (1.66) Ceded by formal authorities (1=Yes) (a) 0.699 0.801+ -0.173 0.317 (1.11) (1.73) (-0.22) (0.49) Purchased infrastr./parcel (1=Yes) (a) 0.309 0.293** 0.609** 0.183 (1.39) (2.71) (3.58) (1.27) Parcel with no any documentation (1=Yes) -0.556* 0.148 -0.068 0.109 (-2.36) (1.20) (-0.08) (0.73) Parcel area in m2 (Log) -0.021 -0.082** -0.244** -0.373** (-0.41) (-3.07) (-3.76) (-8.48) Number of buildings in the parcel 0.157 0.204** 0.119** 0.070** (1.56) (3.35) (4.98) (3.35) Number of Cashew trees in the parcel -0.120* -0.036** -0.013** -0.008** (-2.23) (-3.79) (-3.22) (-2.74) Number of coconut trees in the parcel 0.112+ 0.019 -0.056* -0.048** (1.69) (0.73) (-2.28) (-2.82) (a) Reference is other modes of acquisition which are considered less secure (e.g. gifts, inheritance, occupation, etc.)

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

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;

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

THANK YOU.

MINAG/MSUMCA/MCC