Does Equalizing Assets Spur Development? Evidence From Large-Scale Land Reform in Peru

Abstract

Many scholars point to landholding inequality as a root cause of the “Great Divergence” between rich and poor countries over the last few centuries. Large landowners who fear being eclipsed by the masses or rival industrial elites and seek to preserve social and economic rents under-invest in public goods, block rural-urban migration, and keep peasants poor and subservient. By eliminating large landowners and enabling new policy initiatives, extensive land reform holds potential to vastly and directly improve peasant livelihoods, facilitate human capital formation, and enhance economic and social mobility. We demonstrate that this failed to occur in Peru despite a sweeping land reform that redistributed half of all private land to peasants. Using original localized land reform data and a geographic regression discontinuity design that exploits unevenness in reform implementation, we show that greater land reform intensity in Peru generated more poverty and stunted human development. This occurred because land reform encouraged rural demographic stasis, generated widespread land informality and property rights instability, and reduced political competitiveness. Although the government’s distortionary management of post-reform cooperatives certainly did not maximize their development potential, evidence suggests that Peru’s land reform failed to promote development because of broader inherent features of the reform.