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

45 Pages Posted: 20 Apr 2016

See all articles by M. Shahe Emran

M. Shahe Emran

George Washington University - Department of Economics

Forhad Shilpi

World Bank - Development Research Group (DECRG)

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2010

Abstract

Taking advantage of a historical quasi-experiment in Sri Lanka, this paper provides evidence on the effects of land market restrictions on wages and its spatial pattern. The empirical specification is derived from a general equilibrium model that predicts that the adverse effects of land market restrictions on wages will be less in remote locations. For identification, the study exploits the effects of historical malaria prevalence on the incidence of land restrictions through its effects on "crown land" . During the 16th to early 20th centuries, areas severely affected by malaria were abandoned by households and the land was taken over by the government. These lands that were later distributed through resettlement programs are subject to sales, rental, and mortgage restrictions. The variations in the amount of crown land resulting from different intensity of historical malaria provide a source of exogenous variations in the incidence of land restrictions in a sub-district. The results show that land restrictions reduce wages substantially, and this effect is smaller in remote locations. A 1 percent increase in land restrictions reduces wages by about 6.6 percent at the median travel time from an urban center, and the effect becomes effectively zero after 6 hours of travel time.

Keywords: Transport Economics Policy & Planning, Political Economy, Population Policies, Urban Housing and Land Settlements, National Urban Development Policies & Strategies

Suggested Citation

Emran, M. Shahe and Shilpi, Forhad, General Equilibrium Effects of Land Market Restrictions on Labor Market: Evidence from Wages in Sri Lanka (October 1, 2010). World Bank Policy Research Working Paper No. 5461. Available at SSRN: https://ssrn.com/abstract=1699068

M. Shahe Emran (Contact Author)

George Washington University - Department of Economics ( email )

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Forhad Shilpi

World Bank - Development Research Group (DECRG) ( email )

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