Foreign-Owned Land

37 Pages Posted: 3 May 2004 Last revised: 21 Aug 2010

See all articles by Jonathan Eaton

Jonathan Eaton

Leonard N. Stern School of Business - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: December 1984

Abstract

Land and capital serve not only as factors of production but as assets which households use as stores of value. Standard trade models typically recognize only the first role. In its role as an asset land reduces the amount of national savings available for capital investment. Foreign investment affects the national economy through both asset markets and factor markets. When the share of labor in the land-using sectoris large relative to the labor share in the capital-using sector, factor-market effects are likely to dominate. In this case a drop in the price of the agricultural good or a rise in the land-labor ratio attracts foreign investment, while a drop in the world interest rate raises the welfare of a capital-importing country. If the share of labor in the land-using sector is smaller, however, asset-market effects dominate. These results are then likely to be reversed. Even when trade in claims on land equalizes the domestic and world interest rates, a tax on land raises steady-state welfare.

Suggested Citation

Eaton, Jonathan, Foreign-Owned Land (December 1984). NBER Working Paper No. w1512. Available at SSRN: https://ssrn.com/abstract=336276

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Leonard N. Stern School of Business - Department of Economics ( email )

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