DP13563 The efficiency of land-use in a developing city: traditional vs modern tenure systems in Kampala, Uganda

Author(s): Julia Bird, Anthony Venables
Publication Date: March 2019
Keyword(s): customary, land-tenure, land-use, Uganda, urban
JEL(s): O1, R3, R52
Programme Areas: International Trade and Regional Economics, Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13563

Land rights and tenure systems are an important factor behind poor housing and inefficient land-use in developing country cities. In Kampala, Uganda, four systems of land tenure coexist, allowing a detailed study of the effects of these on household and firm location decisions. Spatially disaggregated data across the city suggest that the presence of a traditional land tenure system (called mailo) skews land-use towards informal housing and away from productive activities. Using a structural model of the city we show that this due to mailo having a positive value for occupants of informal housing, attributable to mailo-specific amenity benefits and/ or rent caps. We use the model to investigate the effect of converting all mailo land in the city to leasehold. Despite direct loss of amenity experienced by mailo residents, aggregate city income may rise substantially because of more efficient land-use. Manufacturing firms move into formerly mailo areas and form new clusters of activity. This increases urban wages, particularly among the low skilled, and raises aggregate urban real incomes by 2% in the absence of localisation economies and as much as 6.7% in the presence of such economies of scale.