Determinants of agricultural land rental market transactions in Bangladesh

Abstract

Land rental market transactions have been the norm in land scarce rural Bangladesh mainly due to the inadequacies of the governmental land distribution system to meet the growing demand for land and to correct imbalances in factor proportions at the farm-level. The present study jointly determines the socio-economic factors underlying decision to rent-in land and/or rent-out land by the Bangladeshi farmers in the land rental market using a bivariate Tobit model. The model diagnostic reveals that the decisions to rent-in and/or rent-out land is significantly correlated, implying that univariate analysis of such decisions are biased, thereby, justifying the use of a bivariate approach. Results reveal that a number of socio-economic factors affect farmers' participation in the land rental market and work in opposite directions regarding the decision to rent-in or rent-out land. The likelihood of renting-in land is higher for farmers with inadequate cultivable land but with higher levels of livestock and other farm capital asset ownership, and also for those located in areas with developed infrastructure and fertile soils. On the other hand, the likelihood of renting-out land is higher among farmers with higher levels of cultivable land but inadequate farm capital and livestock resources, higher levels of education, less subsistence pressure, and poor extension contact. Geography does matter, as the likelihood of land transactions is higher in agriculturally intensive and/or developed regions. Government policy has an important role to play to improve the factor equalisation role of these land rental markets through, for example, investment in education, agricultural extension, rural infrastructure and the livestock sector. © 2009 Elsevier Ltd. All rights reserved.