ADDIS ABABA UNIVERSITY

COLLEGE OF BUSIENSS AND ECONOMICS

DEPARTMENT OF ECONOMICS

SCHOOL OF GRADUATE STUDIES

Advanced Development Economics II (Econ 676)

Term Paper Assignment on

“Land Tenure Security and its Effects on Agricultural Investment in Ethiopia”

Lemi Taye

GSR/5573/10

May 2018
Introduction and Background
Land is the most extensively used resource in the subsistence oriented peasant production system of
Ethiopian agriculture. The various land policies implemented by the previous regimes and the existing one
had important implication for agricultural investment and overall development of the country. The pre-1975
period was characterized by great diversity of official property right regimes (EEA, 2002). During this
period, land was concentrated in the hands of absentee landlords, tenure was highly insecure, arbitrary
evictions posed a serious threat, and many lands were severely underutilized (Deininger and Jin, 2006;
Deininger et al., 2008). After 1975, the Derg government intervened directly in land tenure, declaring all
land to be the property of the state and forbidding both sale and mortgage. It transferred ownership of all
rural land to the state, established peasant associations at the village level, and promoted producer
cooperatives, villagization and resettlement programs (Deininger et al., 2008). Together with lack of public
investment, this led to rapid declines in productivity which, with a rapidly growing population, caused
widespread soil degradation and erosion (Kebede 2002).
The EPRDF government that took power in 1991, though committed to a free-market philosophy, has made
few substantive changes to the land rights held by Ethiopian farmers, with three exceptions (Deininger and
Jin, 2006). First, it gave regional governments control over land issues. Article 52 of the constitution states
that regional governments have the duty to administer land and other natural resources according to Federal
laws (EEA, 2002). Second, the frequency of land redistribution has been reduced. Third, land rentals have
been permitted, though many local governments place restrictions on these transactions. Land is still
declared the property of the state that can neither be sold nor mortgaged and land users have only use rights.
Equity concerns and problems of landlessness in the past have been addressed by a recurrent process of
government-sponsored land redistribution. But this saw a decline in subsequent years. A new land policy
issued in the Regional State of Tigray in 1997 prohibited further land redistribution and formalized land-
lease practices between farmers (Hagos and Holden, 2006).
Starting from 1998 land use certificates have been issued to farmers in order to bolster their tenure security
and to strengthen women’s land entitlement. The region of Tigray implemented the program first in 1998
and 1999, and the other three main regions, i.e., Oromia, Amhara, and SNNP, implemented it starting from
2003. In Tigray, 88% of the rural households received a certificate during 1998 and 1999 which amounted
to 663,000 certificates. Of the remainder, more than half was tackled in 2004. Land registration in the
remaining three regions has been claimed to be one of the largest in the world where more than 20 million
parcels of rural land was registered to some 6 million households in about five years period (Deininger et
al., 2011). It has been noted that land right certification has reduced conflict, helped to empower women,
and improved governance at the local level (Deininger et al., 2006). On the other hand, its investment and
productivity impacts, which take longer to materialize, have been assessed in a number of studies. This
paper reviews the results of these studies and attempts to shed some light on the impact of tenure security
on agricultural investment using a descriptive analysis.

Literature Review
There is agreement that providing the basis for secure and transferable land rights is an important function
of the state and recent popular discussion has reiterated and re-emphasized the importance of property rights
in the process of economic development (De Soto, 2000). The existence of property rights institutions that
protect individuals against expropriation by neighbors and other agents, as well as against the state, offers
incentives for long term investment in productive assets and, through this channel, enhances economic

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growth (Ali et al., 2011). In the literature, three principal mechanisms have been identified through which
land rights influence resource use efficiency and land investment (Besley, 1995; Place, 2009). First, clearly
defined property rights to land will lower the risks of expropriation and eviction and thereby increase
incentives for land-related investment. Second, better rights make it easier to use land as collateral in the
credit market, and improved access to credit may stimulate investment and productivity. A third link
between rights and investment comes via enhanced possibilities for gains from trade; investment is
encouraged if improved transfer rights make it easier for individuals to rent or sell their land.
Whereas it is commonly agreed that tenure security can stimulate investment, the opposite may also be
true—investments are made to enhance tenure security (Besley, 1995; Deininger and Jin, 2006; Sjaastad
and Bromley, 1997; Brasselle et al., 2002). This means that tenure security is endogenous. A positive
correlation between tenure security and investment could thus occur because people invest to become more
tenure secure. This makes both land rights and tenure insecurity endogenous and adds methodological
challenges to the establishment of causality and the estimation of unbiased causal effects (Holden and
Ghebru, 2016). In what follows, various studies on the investment and productivity effects of tenure security
in Ethiopia will be reviewed.
Deininger and Jin (2006) used a large data set from 2001 covering four regions of Ethiopia that
differentiates tenure security and transferability to explore determinants of different types of land-related
investment and its possible impact on productivity. They accounted for possible endogeneity in households’
subjective assessment of tenure security. While their results indicated some support for endogeneity of
investment in trees, this was not the case for terraces. They found land transfer rights and tenure security to
be unambiguously investment-enhancing. They concluded that, in Ethiopia, government action to increase
tenure security and transferability of land rights can significantly enhance rural investment and productivity.
Deininger et al. (2011) explored whether the land certification program in the Amhara region in Ethiopia
had positive economic impacts. They found that certification resulted in a significant reduction of tenure
insecurity and an increase in land-related investment. Their results consistently pointed to a statistically
significant and economically meaningful certification impact on the propensity to invest in soil and water
conservation measures and the number of hours spent on such activities. They also found that certification
increased the propensity to rent out and the amount of land rented out in the sample.
Holden et al. (2009) assessed the investment and productivity impacts of the low-cost land certification
implemented in the Tigray region of Ethiopia, using a unique household and farm plot-level panel data set,
with data from before and up to eight years after the reform. They used alternative econometric methods to
test and control for endogeneity of certification and for unobserved household heterogeneity. They found
significant positive impacts, including effects on the maintenance of soil conservation structures,
investment in trees, and land productivity.

Land Certification and Agricultural Investment in Ethiopia

This section assesses the available evidence on certification of rural land and land-related investment in
rural Ethiopia. Unfortunately, due to data limitations, the analysis is restricted to only two regions in
Ethiopia, viz. Tigray and Amhara. Figure 1 compares plots of land with and without certificate in Tigray in
2001 and 2006. It indicates that stone terraces are more likely to be found on plots with a certificate (54%)
than on plots without a certificate (48%), whereas the opposite appears to be the case for soil bunds (25%
vs. 15%). There was no significant difference in the mean maintenance status of plots with and without a
certificate. This variable has a range from −1 to 1 and the positive mean values indicate that the maintenance

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status of such structures has improved over time. The numbers of eucalyptus trees, indigenous trees, young
trees, and tree seedlings were significantly higher on plots with a certificate than on plots without. This may
indicate that households are less inclined to harvest and more inclined to plant trees on plots with a
certificate. The mean value of output per hectare was significantly higher on plots with a certificate than on
plots without a certificate.

Figure 1: Descriptive Statistics for Key Investment and

Productivity Variables
12

10 9.08
7.13 7.01
8

6 5.05
3.86
4

2 1.37
0.54 0.48 0.15 0.25 0.38 0.36

0
Stone terrace* Soil bund*** Maintenance Eucalyptus Tree Log of yield
of SWC trees*** seedlings** value**

Certificate No Certificate

Note: Single asterisk (∗), double asterisks (∗∗), and triple asterisks (∗∗∗) denote
significance at 10%, 5%, and 1%, respectively for the t-test. SWC - soil and water
conservation structures.
Source: Holden, S. T., Deininger, K., & Ghebru, H. (2009). Impacts of Low-Cost Land
Certification on Investment and Productivity. American Journal of Agricultural
Economics, 91(2), 359–373.

Table 1 displays levels and changes over time in land-related investment in both treated (those with
certificate) and control (those with no certificate) villages in Amhara region. Although the pre-program
share of plots that had investment or repairs and the amount of time spent on such investments were
significantly higher in control villages, compared to treated villages, the difference in both narrowed
significantly and the construction of new conservation structures even reversed, consistent with the
hypothesis that certification did affect investment incentives in the expected direction. For example, a
significant decline in the share of households which voluntarily constructed new conservation structures or
repaired existing ones (from 36 to 24 percent), and the number of hours spent (from 8.2 to 5.5 hours) in
control villages contrasted with an equally large increase (from 12 to 25 percent, and from 2.3 to 4.4 hours,
respectively) of this variable in treated villages. Similar narrowing or reversal is observed in the share of
plots with any type of conservation structure (from 44 to34 percent in control villages, and from 22 to 32
percent in treated villages), and in the share of households which constructed new conservation structures

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during the last 12 months (from 10 to 8 percent and from 7 to 10 percent in control and treated villages,
respectively).

Table 1: Land-related investment over a period of 12 months (plot level)

No Certificate With certificate

2004 2007 2004 2007
Repaired conservation structure or
built new one 0.36 0.24 0.12 0.25
Number of hours spent on
conservation 8.22 5.51 2.26 4.38
Built new conservation structure 0.10 0.08 0.07 0.10
Plot has conservation structure 0.44 0.34 0.22 0.32

Source: Deininger, K., Ali, D. A., & Alemu, T. (2011). Impacts of Land Certification on
Tenure Security, Investment, and Land Market Participation: Evidence from Ethiopia.
Land Economics, 87(2), 312–334.

Conclusion
The majority of available evidence suggest that improved land tenure security has a positive and significant
impact on land related investment in Ethiopia. This evidence of clear benefits implies that completion of
certification will bring more positive economic gains. However, there is a need to revise the institutional
set up for this process through a highly participatory, transparent and coordinated approach to certification.
As discussed earlier, three principal mechanisms have been identified through which land rights influence
resource use efficiency and land investment; namely, the security effect, the credit supply effect, and the
transaction effect. This paper has focused on the first and the last channels. But the second channel, i.e.,
allowing credit markets to develop further using land as collateral, is as significant as the other two. Thus
more studies need to be conducted to investigate the impact of tenure security through this channel.
Moreover, the non-economic effects of the program, particularly its impact on female empowerment, will
also need to be assessed, which is an area of further research.

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