The Impact of Land Rights on Rural Investments: Evidence from Nicaragua

Abstract: While there is a general consensus that the security of property rights is a fundamental condition for the long run development of the agricultural sector in developing countries, there has been relatively little empirical analysis to date of the relationship between property rights and economic activity attached to land in Latin America. This thesis examines the impact of land rights on rural investments in Nicaragua. The country is of interest as its troubled history of land expropriation and lack of enforcement of property rights severely has undermined the credibility of the legal property rights system. Two hypotheses are presented in order to test the relationship between secure land titles and rural investments and a third hypothesis is presented in order to test the credit supply effect. The results indicate that land titles can have a major impact on tenure security and investment. Possession of a secure title is found to increase the value of land-attached investments by 86.1% and the probability of carrying out such investments increase by 64.7%. Descriptive analysis of the credit supply effect also indicates that the possession of a secure land title increases access to credit since producers with secure titles have a higher proportion of received credit compared to producers without such titles. Ownership rights seem to be of most importance for access to formal credit as producers with secure documents have significantly better access to credit from private banks compared to other producers.