Wednesday, August 10, 2011

Land titling and access to credit

It is widely believe that a key ingredient of economic development is the accessibility of credit. Indeed, entrepreneurs typically need credit to develop their business plans, and much of capital accumulation is performed through credit. But no one is going to grant credit on a promise, some collateral is needed. And that is a problem in many developing economies, as people hold little property and even land is communal or without clear property rights. Hence the idea that distribution of untitled land, with well-established property rights, should provide collateral to a large fraction of the population and make credit possible. How does this work in practice?

Caio Piza and Maurico Moura study the case of a major land titling initiative in Brazil. They use an interesting natural experiment. Two neighboring and very similar communities of the city of Corosco (correction: Osasco) were to get property titles for every inhabitant, but five year apart (2007 and 2012). This leads to a nice control group, which allows to overcome the problem of the endogeneity of ownership rights of a typical study by using a difference-in-difference approach. Indeed, the authors conducted a survey in 2007 before the titling, and another one in 2008. In addition, the context here is urban, which is unusual for a titling study. It appears access to credit increases by 22 percentage points, or about a half, within 18 months of titling. This is major. I do not think such large estimates have been found in rural studies. And given that developing countries become increasingly urbanized, this is very interesting.

1 comment:

Caio Piza said...

Thanks for your interest in our paper. It is still a working in progress although the results are unlikely to change in updated versions.
I do agree that these findings are pretty much interesting since they are the first evidence for Brazil, they come from an intevention in an urban area, and the intervention itself wasn't expensive.
Therefore, I think this shows we can learn a lot about development even doing small interventions like that. External validity will always be a problem, but I wonder in what kind of study it won't be an issue of concern(!).

Thanks and best of lucky with your blog.

PS: the name of the city is Osasco.