Efficiency and equity impacts of the rental market for cropland in Vietnam and sources of transaction costs impeding the market

Abstract

This research investigates the efficiency and equity impacts of the cropland rental market in rural Vietnam and attempts to identify the determinants and importance of transaction costs impeding this market. A generalised ordered logit model with shifting thresholds accounting for effects of transaction costs associated with market participation was specified and estimated using pooled data extracted from the Vietnam Household Living Standards Surveys of 2004 and 2008. The findings show that the cropland rental market reduced imbalances in factor endowments, transferring cropland to those households more willing and able to farm. Equity advantages were also revealed as cropland transferred from relatively land-rich to relatively land-poor households, allowing young farmers to ‘scale the agricultural ladder’. However, the market is constrained by transaction costs that effect lessors and lessees differently. It is recommended that the Vietnamese government should complete its land registration programme and consider relaxing restrictions on the use of wetlands to grow crops other than rice. It should also focus on improving access to all-weather roads as this encourages participation on both sides of the rental market whereas better access to communications infrastructure was found to promote only the supply side.