Does market integration increase rural land inequality?: evidence from India

Investments in transport infrastructure lower trade costs and lead to integration of villages with urban markets. Does spatial market integration increase land inequality in rural areas
Theoretical analysis by Braverman and Stiglitz (1989) suggests that the interactions of lower trade costs with credit market imperfections can increase land inequality. This paper discusses and deals with potential objections to the exclusion restrictions. The evidence suggests that a 10 percent increase in a gravity measure of market access increases the land Gini coefficient by 2.5% and the share of landless households by 6.8%. This paper finds evidence consistent with the Braverman and Stiglitz (1989) hypothesis that the interaction of credit market imperfections with lower trade costs increases land inequality: a 10 percent increase in market access increases the adoption of increasing returns farming technology by 3.5 percent. There is a positive effect on land sales, but the instrumental variables estimates are imprecise. The robustness of the conclusions is checked by relaxing the exclusion restriction using the Conley et al. (2012) approach, and the bias-adjusted ordinary least squares estimator of Oster (2019) that does not impose any exclusion restrictions. The estimated effects of market access cannot be accounted for by the colonial land revenue system, demographic pressure on land, and differences in inheritance law between the Hindu and Muslim population in a district.