This is a chapter in a book entitled "The Emergence of Land Markets in Africa Impacts on Poverty, Equity, and Efficiency" edited by Stein Holden, Keijiro Otsuka and Frank Place, 2009.
This chapter tries to evaluate whether land rental markets in Ethiopia allow households to attain their desired level of cultivated land irrespective of their endowment using the friction model developed by Rosett (1959) and Skoufias (1995).
Land in Ethiopia is a key productive asset and the main source of income for a large segment of the population. This chapter uses a more detailed panel dataset from Ethiopia to analyze the extent to which land markets help farmers capitalize on existing and emerging opportunities. Given the limited endowment of land that is under significant threat of degradation and high levels of climatic risk, Ethiopia is a good case study since making the most productive use of its available land resources is important to escape the threat of starvation and dependence on food aid.
The results show the existence of large amounts of friction that prevents landowners from using rental markets to adjust to their optimum size. More study is required to identify the observed friction as policy induced. A national sample could potentially differentiate the impact of policy from other factors that contribute to the lack of efficient use of land markets since policies are made on a regional level.
