CFCM Seminar: Diego Restuccia (University of Toronto)

Land security and mobility frictions (with Adamopoulos, Brandt, Chen, and Wei)

Abstract: Many developing countries face explicit and/or implicit frictions that impede the mobility of workers across occupations and space. We disentangle the role of insecure property rights from other labor mobility frictions for the sectoral reallocation away from agriculture and the out-migration of workers from rural to urban areas. We combine rich individual-level panel data from China and an equilibrium quantitative framework, featuring frictional self-sorting of workers across locations and occupations. We explicitly model the farming household and the endogenous decision of who operates the family farm and who potentially migrates, capturing an additional channel of selection within the household. We find that land frictions have substantial negative effects on agricultural productivity and structural change, increasing the share of households operating farms by almost 30 percentage points and depressing agricultural productivity by more than 13 percent. Quantitatively, land frictions are as important as all other labor mobility frictions. Over time, from 2004 to 2018, we find an easing of land frictions consistent with land tenancy reforms during this period, whereas there is a relative increase in the importance of other labor mobility frictions.