Impacts of Land Rental Markets on Rural Poverty in Kenya

This study uses panel data from 1,142 Kenya smallholder households over four survey periods to examine the determinants of participation in land rental markets and to quantify the impact of renting land on households’ crop income and total income. We find that land rental markets in Kenya enhance productivity and are equitable. The results are consistent across different estimation methods and model specifications. Dynamic panel models were used to assess the impact of rental participation on households’ crop income and total income. After controlling for the endogeneity of rental market participation and the persistent effects of lagged income, we find that the decision to rent land increased tenant households’ net crop (net total) income by 25.1 (6.6) percent. These percentage gains are inversely related to household landholding size. Hence, land rental markets in Kenya appear to play an important role in raising incomes and reducing poverty for land-constrained smallholder farmers. Land is one of the most important productive assets of rural residents in developing countries. How land is owned, used, and exchanged has far reaching implications for productivity, equity, and overall economic growth. While the impacts of land tenure security on land related investments, credit access, and agricultural productivity have been widely studied in the literature (Feder and Feeny 1991; Besley 1995; Alston et al. 1996; Brasselle et al. 2002; Jacoby et al. 2002; Galiani and Schargrodsky 2005; Do and Iyer 2008) there have been relatively few studies of the performance and impact of land rental markets (Pender and Fafchamps 2006). Within the literature on land rental markets, previous studies have focused mainly on Asia (Holden, Otsuka and Place 2009). There is little evidence from Africa on the reasons why rural households would want to rent or lease land in the first place and the consequences of participating in land rental markets, especially for poor and/or highly land-constrained households with limited off-farm employment opportunities. These knowledge gaps need to be addressed as issues of land access and international investment in land become increasingly prominent on the policy agenda (Commission for Africa Report 2005; U.N. Millennium project 2005; the World Bank’s World Development Report 2008; and the joint FAO, IFAD and IIED report on international investment in agricultural land in Africa, 2009). In the meantime, land 3 markets in Africa have recently been found to be more widespread than previously realized, though the types of exchange, contractual arrangements, and the extent of land market activity vary considerably from country to country (Holden, Otsuka and Place 2009). The rising importance of land markets and the need for empirical evidence to guide African governments and development partners in formulating actionable land policies are the main motivation for this