Journal of Public Economics, October 2010, vol.94, iss.9-10, pp.700-729. Available From:Link to Source
This study evaluates the effect of land titling on poverty reduction. Academic theory suggests that solid property rights are crucial to facilitate the socioeconomic development of the poor. Formal land titles could enable the poor to use their land as collateral for credit, providing them with a valuable insurance and savings tool. The impact evaluation of land titling, however, is challenging, as the granting of formal titles is usually endogenous to the outcomes of interest.
The authors exploit a natural experiment that ensures that the granting of land titles is exogenous. It takes the case of a group of urban squatters in Buenos Aires, Argentina, who had occupied an area of wasteland in 1981. The state expropriated this land from its legal owners in 1984 to allocate it to the squatters. However, 5 of the 13 former owners disputed this decision, and their trial remains in court to this day.
These differences in the former owners’ reactions to expropriation provide the authors with an exogenous source of variation in the allocation of land titles. The squatters of those parcels whose owners accepted the state’s decision form the treatment group (those who received land titles), whilst the squatters of the area that remains under dispute continue inhabiting their parcels without legal titles (the control group). In total, there are 1,082 contiguous parcels, of which the occupants of 419 parcels received titles in 1989 (early treatment group) and those of 173 further parcels in 1998 (late treatment group). Further, two surveys were conducted in 2003 and 2007 to interview 467 households out of the total sample, living on 448 randomly selected parcels.
To ensure that the allocation of land titles was truly exogenous, the authors first show that there were no differences in pre-treatment household or parcel characteristics. Hence, they conclude that this natural experiment can be treated as randomised trial and that land titling can be evaluated accordingly. They further address potential methodological problems, as a potential correlation of error terms or noncompliance bias, using clustering techniques and estimating the intent-to-treat effect.
The authors identify five variables of interest to assess the impact of land titling on socioeconomic household characteristics: housing investment, household structure, human capital accumulation, access to credit and labour earnings. According to theory, the acquisition of full property rights should improve all of these characteristics for the treatment group.
Effectively, the authors found significant positive effects for the first three characteristics: (1) Investment in housing, measured for example in terms of constructed surface or the probability of having walls, improved housing quality by 37 per cent compared to the control group. (2) There was also a substantial impact on household structure, as average household size decreased from 6.06 members in the control group to 5.11 members in the treatment group. The greater size of households without land titles is explained through a higher number of offspring as well as a greater presence of extended family members. (3) Relating to the third variable of interest, land titling also significantly increased investment in children’s education, as they had on average 0.69 more years of schooling and a 53 per cent completion rate of secondary education, compared with only 26 per cent in the control group.
Concerning the effects of land titling on access to credit and labour income, the authors find no effect on these two characteristics. These results are not surprising in view of the findings of previous studies suggesting that real estate possession might not be sufficient to qualify for formal credit. Nevertheless, the substantial positive impact of land titling on house quality, household size and investment in children’s education suggests that allocating solid property rights to the poor might reduce poverty in future generations.