Land Consolidation as Technical Change: Effects on Off-farm Labour Supply in Vietnam

This paper studies land reform through the reduction of land fragmentation in rice production and views it as a form of technical change. The analysis hypothesizes that the impacts of land consolidation depend on the factor bias of this technical change. At a theoretical level, if the technical change is factor neutral, it will reduce off-farm labor supply and slow rural structural transformation away from rice production. Conversely, if the technical change is factor-biased and the elasticity of substitution between factors is low enough, the opposite conclusions are possible. The paper studies the implications of these propositions for Vietnam by developing an empirical analysis of the impact of rice land consolidation on farm and nonfarm outcomes. The findings indicate that the reduction of land fragmentation – land consolidation – decreases farm labor supply, reduces labor intensity in agriculture and raises farm profits and productivity. In quantitative terms, if land fragmentation declines by 1 per cent, farm labor supply decreases by 0.36 per cent. Farm profits and productivity per hectare increase by 0.12 per cent and 0.055 per cent, respectively. Similarly, land consolidation releases more farm labor to nonfarm sectors, and increases nonfarm profits. Based on these findings, the paper argues that land consolidation should be encouraged through development of institutions related to land markets, such as land ownership rights and the promotion of land rental markets.