Transferable Land Rights and Rural Entrepreneurship: Evidence from China’s Rural Construction Land Reform

Abstract

Understanding the determinants of rural entrepreneurship is crucial for tackling global rural poverty. In this study, we focus on a less noticed but vital factor: the transferability of land property rights. Grounded in China’s ambitious land reform that allows rural collectives to directly sell or rent their rural construction land to enterprises, we find that the formalization of land transfer rights encourages rural entrepreneurship. Specifically, towns in the reform counties observe a significant increase in the number of newly registered rural firms, by approximately 25%, in comparison with towns in well-designed control counties. The growth in rural firms is primarily driven by farmers’ increased property income obtained via the land reform, which directly encourages local farmers to start businesses and indirectly attracts investors to rural regions because of the increased consumption demand. We also find evidence that formalized land transfer can reduce land use costs and uncertainty for rural enterprises. The benefits of land reform are considerable, as we observe significant rural employment growth in land reform counties, which is primarily driven by non-agricultural job opportunities for local women. Our findings highlight the importance of transferable property rights on alleviating factor misallocation and provide new insights on how to promote rural structural transformation in developing countries.

Keywords: Rural Entrepreneurship, Land Reform, Property Rights, Misallocation, Rural Development

JEL Classification: R52, H59, O18