General Equilibrium Effects of Land Market Restrictions on Labor Market: Evidence from Wages in Sri Lanka

Abstract

Taking advantage of a historical quasi-experiment in Sri Lanka, this paper provides evidence on the effects of land market restrictions on equilibrium wage and its spatial pattern. For identification, we exploit the effects of historical malaria prevalence on the incidence of land restrictions through the availability of `crown land'. The results indicate important spatial heterogeneity in the effects of land restrictions. There is no perceptible effect in the rural areas adjacent to urban areas. The negative effect of land restrictions is strongest in rural areas located within 3.5 hours travel time from large urban centers. The elasticity of wage with respect to land restrictions is -0.186 in this zone.

Keywords: Policy Restrictions in Land Market, Sales Restriction, Rental Restriction, Labor Market, Wages, General Equilibrium Effect, Interaction Effect, Travel Time, Malaria, Sri Lanka

JEL Classification: O10, J31, J61