Does Participation In The Land Rental Market Improve The Welfare of The Rural Poor?Panel Data Evidence From Tigrai, Northern Ethiopia.

Abstract

The purpose of this study is to analyze the factors affecting land rental market participation` and its welfare effect on smallholder farmers. The data for this study come from three rounds of balanced panel data collected from 320 smallholder farmers in 2005/06, 2009/10, and 2014/15 cropping seasons from rural Tigrai, northern Ethiopia. A correlated random effect Tobit models were used to estimate factors affecting the extent of land rental market participation from the demand and supply sides. Household-level fixed effects with a control function approach were used to assess the impact of land rental market participation on rural farm households’ welfare. Variation in resource endowments explains land rental market participation across landlords and tenants, reflecting the role of non-land resource inequality in driving land rental market development. The results support the general positive returns of smallholders’ welfare improvement to renting land from the landlord household and the tenant household on average. The findings in this paper highlight those vital public interventions that may facilitate land rental market development should be sought. This may encompass efforts to illuminate rental rights through securing landholders and interventions that reduce transaction costs such as information sharing, network development, and contract enforcement.