Government intervention in land transactions is common in developing countries, especially where land markets function poorly. This is the case in Ethiopia, where expropriation of farmland from small-scale farmers has been used by all levels of government as a tool for providing new land for industrial investors, commercial agriculture and expanding cities. This paper evaluates the impact of such a policy on a group of small-scale farmers whose land has been taken to make room for a large factory. Baseline data was collected in the year before expropriation and a follow up survey was conducted 8 months after households lost their land and received payment. On average, household lose 70% of their land and receive compensation payments that are about 5 times the value of annual consumption expenditure.
I find that households in the treatment group increase their consumption, start more businesses and participate more in non-farm activities than households that do not lose farmland. These households also reallocate their livestock portfolios away from oxen and towards small ruminants and cattle, reflecting a shift away from growing crops. However, all of these changes are relatively minor compared to the increase in savings: with the exception of a few households, most of the compensation payment is left in the bank.
Harris, A. Expropriation, compensation and transitions to new livelihoods: Evidence from an expropriation inEthiopia. CSAE Economics Department, University of Oxford, Oxford, UK (2015) 40 pp. [CSAE Working Paper WPS/2015-04]