The promise of land titling as a powerful policy instrument to attack poverty has been recently reinvigorated in policy circles by the work of De Soto (2000). His work argues vehemently that titled property creates capital because formal landholders could use these assets as collateral for loans. In turn, this credit could be invested as capital increasing their labor productivity and hence, the income of the poor. However, rigorous evidence backing up these effects is scant and ambiguous. Are land-titling programs a powerful tool to reduce poverty or will the societies that adopt them face another policy delusion? In other words, what are the causal effects of urban land titling? To answer this question is not easy at all. To identify what would happen to a family if they receive the title to the plot of land they inhabit instead of staying in that piece of land without the legal title is complicated: the problem is that we do not observe the same families in both situations. Thus, any attempt to answer this question has to compare families with and without land titles. The credibility of these studies depends crucially on their ability to show that both groups of families were very similar before one group received the titles, and that the tracks of land they inhabit are also almost identical. In a recent study I did with Ernesto Schargrodsky (Universidad Di Tella) –“The effects of land titling”- we exploit a natural experiment to solve the problem of comparability between titled and untitled families. More than 20 years ago, a large number of comparable squatter families occupied a very small area of wasteland in the outskirts of Buenos Aires, Argentina. The area was made up of different tracts of land, each with a different legal owner. An expropriation law was subsequently passed, ordering the transfer of land to the state in exchange for a monetary compensation. The purpose of the law was to allow the state to later transfer legal titles to the squatters. However, only some of the original legal owners surrendered the land, which was then titled to the squatters. Other owners are still contesting the compensation payment in the slow Argentine courts. As a result, a group of squatters obtained formal land rights, while others are currently living on similar parcels without legal titles. Our study finds the following: Entitled families between 7 and 14 years ago now own much better houses than untitled families. Analyzing an ample set of investment indicators, we conclude that titled houses are 40% better than untitled ones. Do titled households have more access to credit? Our evidence suggests that there is not much difference on this respect. The effect is small. In addition, there are no differences at all in their actual earnings. Thus, should we conclude that entitling the urban poor is not a sensible policy? Not necessarily. Our study also shows that the households in the titled parcels have smaller size and seem to invest more in the education and health of their children. Thus, entitling the poor enhances their investment both in the house and on the human capital of the children of the entitled families, which will reduce their poverty in the future.
Author: Sebastian Galiani. Associate Professor Department of Economics Universidad de San Andres Argentina
VERSION EN ESPANOL
Using Land Titling and Registration to Alleviate Poverty
Land Titling and Indigenous Peoples