DP8736 The Regulation of Land Markets: Evidence from Tenancy Reform in India
While the regulation of tenancy arrangements is widespread in the developing world, evidence on how such regulation influences the long-run allocation of land and labor remains limited. To provide such evidence, this paper exploits quasi-random assignment of linguistically similar areas to different South Indian states and historical variation in landownership across social groups. Roughly thirty years after the bulk of tenancy reform occurred, areas that witnessed greater regulation of tenancy have lower land inequality and higher wages and agricultural labor supply. We argue that stricter regulations reduced the rents landowners can extract from tenants and thus increased land sales to relatively richer and more productive middle caste tenants; this is reflected in aggregate productivity gains. At the same time, tenancy regulations reduced landowner willingness to rent, adversely impacting low caste households who lacked access to credit markets. These groups experience greater landlessness, and are more likely to work as agricultural labor.