An Unintended Consequence of Historical Land Ceiling Legislations: Impact on Land Acquisition and Corporate Investment in India

47 Pages Posted: 17 Apr 2017

See all articles by Sarmistha Pal

Sarmistha Pal

University of Surrey; IZA Institute of Labor Economics

Zoya Saher

Queen Mary University of London; University of Surrey

Date Written: April 15, 2017

Abstract

There is a growing debate about land acquisition for infrastructure and industries in many densely populated countries. In this context, the present paper assesses the impact of the historical land ceiling legislations, largely implemented during 1960-85 to promote distributional equity, on corporate investment in India. We argue that the implementation of the land ceiling legislations had increased the transaction costs of buying land and also the price premium firms pay when acquiring land, thus inducing firms to invest less in land and capital. The detrimental ceiling effect is more pronounced when the ceiling size is more restrictive as for the most fertile land. Arguing that the variation in land ceiling size across the Indian states over time was largely dependent on choice of crops or soil fertility and as such could be treated as independent of the state authorities, our results support the conjecture that more restrictive land ceiling size has led to lower investment in both fixed and total capital output ratios at the state-level (1960-85). Further analysis of firm-level (1996-2012) data confirms that the ceiling effect persists in the long run, thus identifying an unintended consequence of land ceilings for investment and economic growth in the Indian states.

Keywords: Land ceiling legislations, Transaction costs of land acquisition, Corporate investment, Fixed and total capital-output ratios, More and less land-intensive firms, India. 1. Introd

JEL Classification: Q1, O4

Suggested Citation

Pal, Sarmistha and Saher, Zoya, An Unintended Consequence of Historical Land Ceiling Legislations: Impact on Land Acquisition and Corporate Investment in India (April 15, 2017). Available at SSRN: https://ssrn.com/abstract=2953427 or http://dx.doi.org/10.2139/ssrn.2953427

Sarmistha Pal (Contact Author)

University of Surrey ( email )

Stag Hill
Guildford, England GU2 7XH
United Kingdom
01483 683995 (Phone)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Zoya Saher

Queen Mary University of London ( email )

Mile End Rd
Mile End Road
London, London E1 4NS
United Kingdom
E14NS (Fax)

University of Surrey ( email )

Stag Hill
Guildford, Surrey GU2 5XH
United Kingdom

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