Land Titling, Local Governance and Investment: An Empirical Investigation in Tanzania

The role of property rights in resource allocation has been one of the central themes in development economics. Empirical clarity has been lacking; however, due to possible endogeneity of titles, unobserved heterogeneities and the non-experimental nature of the data. In addition, local political arrangements could encroach on the legitimacy and security that government titles provide. This study introduces new information that captures plot owners’ (dis)approval of local governance structures and its implications on the titling-investment relationship. We find that titles will have the expected outcomes when there is higher level of approval of local administrative units by plot owners. Using the 2010/2011 Tanzania Living Standards Measurement Survey data, we show that the effects of titling on investment is positive and sizable. However, the investment return from titling is either negative or nonexistent when there is a higher level of disapproval of the local governing units by plot owners. Simply providing titles might not help investment without underlying changes in local governance and hence perceptions and legitimacy of local governance structures. Investment on land depends not on titling per se, but the future security titling might provide which in turn depends on the sense of approval (or disapproval) owners accord to the local the administrative structure and their functions.