Working Paper 346 - The Globalisation of Farmland

This paper proposes a model that sheds light on foreign direct investments in farmland. Countries can obtain food from other countries through international trade as well as by means of foreign land acquisition to offshore production. In equilibrium, bilateral trade and investment decisions are a function of cross-country differences in technology, land endowments, land governance, trade costs and domestic demands for differentiated food varieties. Using global data on transnational land deals, a test of the gravity equation for land investments shows evidence of bilateral patterns in line with the theory. In particular, the positive role of investor and host-country remoteness from markets in explaining bilateral investments is indicative of investor’s food self-sufficiency motives. This contrasts with the negative role of host country remoteness in explaining platform-motivated FDI as is often the case with manufacturing. The paper also finds evidence that global financial centers in investor countries have facilitated transnational land deals.