– This paper aims to understand the impact of land acquisition and the provision of rehabilitation and remuneration (R&R) transfers included in it, toward the short-run and the long-run growth of an economy as well as on the welfare of farmers and industrialists over time.
– The authors develop a two-sector model of growth with agriculture and manufacturing in which land is an essential input to production in both sectors. Industrialists buy land from farmers and deals include R&R payments. Individuals live for one period and at its end, bequeath land and capital assets to their child. There is Hicks-neutral technical progress in each sector.
– The R&R policy has no effect on the long-run sectoral growth or land allocation. While such a policy benefits the farmers initially, after a certain period, it reduces their welfare. The R&R scheme makes the industrialist worse-off in all periods. It was found that besides the standard convergence effect, land acquisition by the industrial sector increases the growth rate of capital. This may lead to non-monotonic growth rate of capital.
– The two-sector model abstracts from labor and labor markets. Hence, sectoral employment mobility or changes in the skill-wage premium over time are not captured.
– First, this paper developed a two-sector growth model with land as a factor of production and an asset. Second, it examined growth and distributive impacts of the R&R package embodied in land transactions.
