1. Problem

After the collapse of the Soviet Union's socialist system in the early 1990s, the agrarian sectors were also subjected to a transformation into a market economy. During the phase of transformation, which began in 1990, the agrarian gross national product of the CIS countries decreased by an average of around 30%. The same is true for the average labour productivity in the agrarian sector, which has decreased by an average of around 40%. Since then, the population of many countries of the CIS has begun cumulative rely on subsistence agriculture and the majority of the population earns at least a part of its income by working in agriculture.

In order to re-establish the efficiency and competitiveness of the CIS' agrarian sectors and to proceed against the extremely fast pauperisation of parts of the population, a common conceptual frame of reform was proposed for all countries and most countries began to put it into practice. On the macro-economic level this frame includes the abolishment of central controls, the liberalisation of prices and trade, as well as the introduction of strict budget restrictions and the building up of a rural financial system. On the sectoral micro level there is supposed to be a change of collective agriculture to household or business production (individualisation), as well as a general reduction of farms' sizes. The abolishment of collective agriculture is automatically linked with the privatisation of real estates and thus to a reorganisation or division of kolkhozes and sowkhozes. According to western thinking, this process also implies the introduction of transferable property rights and functioning rural markets. In literature and practice, this package of reforms on the sectoral micro level, including the restructuring of land use, is called land reform and restructuring of farms. Usually, a land reform is connected with the privatisation of supplying and processing operations in the agricultural industry.

In the course of a land reform, two tasks have to be fulfilled. First, a legal frame for property rights has to be created. Secondly, it has to be decided who will receive how much land according to which criteria and in which form (strategy of allocation).

The research project's aim is to appraise the effects of the market economy oriented land reforms in Georgia and Moldavia and to perform a comparative evaluation of the respective strategies. The influence of different land reform strategies on the efficiency and the value of agricultural production, as well as the poverty in rural areas will be the focal points of the examination. In connection with this, it shall be analysed which effects direct allocation of real estate in Georgia has had on relevant transformation parameters compared to the distribution of shares in Moldavia. The structure of agriculture in both countries is similar. This similarity in the agricultural structure among the cultural comparability is a major reason for the choice of Georgia and Moldavia.

Significant relations between land reforms and the development of the agrarian sector shall be revealed with the help of econometric cross section and panel analyses as well as with complemental interviews. In order to be able to conduct these analyses, data with regard to the transformation parameters shall be collected on a regional level.

2. Current State of Research With Regard to Land Reforms in the CIS

While up to now land reforms have mainly been undertaken with different degree of success in developing countries, the second generation of land reforms take place in the former communist countries and concern around 130 million rural households (excluding China) there. On the one hand, the aim of land reforms is to increase the efficiency and competitiveness of agriculture. On the other hand, land reforms are regarded as a policy of redistribution, which are supposed to contribute to the fight against poverty or to a more even distribution of natural resources. These two aims are also pursued in the countries of the CIS, because the socialist systems have collapsed due to their inefficiency and poverty has increased rapidly as a result.

The introduction of a free market system on the agrarian sector, consisting of the landed property constitution / Grundbesitzverfassung and the labour constitution / Arbeitsverfassung, should - amongst others due to a radical change of the agrarian structure - eliminate these efficiency problems. The renewal of the landed property constitution aims at the introduction of private property and resulting from it at the establishing of functioning agricultural markets. The amendment of the labour constitution is supposed to lead to an abolishment of collective rationing. According to this the evaluation criteria of a land reform derive from the attributes of a market economy oriented agriculture as it exists in western countries. The political process is evaluated depending on how much land has been converted into private property, whether there has been an individualisation of production and whether the rights of land use are transferable.

Landed Property Constitution/ Grundbesitzverfassung

Here, the question is first of all whether life-long rights of use are better for the national economy's welfare than privatisation. The introduction and registration of private property rights has positive effects on the economic development and on the poverty situation, because it creates clear terms of ownership and furthers or facilitates the establishing of efficient rural markets. Safe private property rights have positive effects on the economic development, e.g. increasing investment incentives, increasing credit supply and demand, increasing liquidity, as well as poverty-reducing effects.

Labour Constitution / Arbeitsverfassung

Apart from the introduction of private property, a land reform in the CIS aims at breaking up kolkhoz and sowkhoz structures. The aim of the restructuring is the transition to an agriculture, in which individual farming and small private businesses dominate. Individual farming means production by the owner or the tenant. In these cases advantages of family farms with a small farming area as well as advantages of businesses with a large farming area can be identified by means of theoretical and empirical analyses of research concerning optimal farming areas. Usually, the running of a family farm, however small it may be, still has a positive effect on the income situation of the petty farmer, even though he is only able to conduct subsistence agriculture on his plot of land. Economies of scale often allow a more efficient production on bigger farms, so that in the meantime the opinion has taken root in the literature concerning land use in Central and Eastern Europe and in the CIS that the "right" farm size is to be found in the middle.

Rural Markets

Looking at the advantages of registered property rights and of the individualisation mentioned above, it becomes apparent that the results described may only be realised if rural markets exist on which the property rights and rights of use can be traded. Registered property rights and rights of use are though a prerequisite for the development of rural markets, their value for the individual subjects of economy and the whole national economy decreases considerably if they cannot be transferred due to a lack of or imperfect rural markets.

First of all, the success of land reforms in the CIS depends on the initial conditions in the respective countries. Furthermore, the nature of the implemented land reform is important. The reform of property rights and the structuring of farms have been carried out in different ways in the countries of the CIS. Basic differences in the implementation are the countries' privatisation and allocation strategies. In the case of the privatisation strategy, it has to be distinguished between whether the state's property of land is supposed to be returned to the original owners, whether it shall be allocated newly or whether a cross between the two possibilities will be carried out. A return of land to the original owners is the more likely even the shorter communist period has been, more even land has been distributed and the original owners can be still identified. In the case that land is allocated anew, an allocation strategy has to be chosen. The possibilities are to allocate real estate directly to the population or to hand out shares of stock with regard to the plots of land. A mixed strategy is also possible. Most countries of Central and Eastern Europe have returned the nationalised land to the original owners, while the countries of the CIS have allocated it anew.

Several contributions deal with the analysis of different land reform strategies and their effects on labour productivity, individualisation and rural poverty. Concerning the privatisation strategy, advantages of a new allocation are to be found with regard to individualisation when compared to the return of land to the original owners. In the case of a return of land, though, a better progress of productivity is to be expected. In the case of the allocation strategy, literature favours a distribution of real estate to handing out shares of stock, because the distribution has a more positive effect on the individualisation and labour productivity.

It is noticeable that there is almost no empirical research with regard to the effects of poverty as well as to the individual components of land reforms – privatisation, individualisation, and structuring of farms – to land reforms as a whole, let alone of different land reforms. This is especially true for the countries of the CIS, even though the reduction of poverty is an aim of land reforms which is equally important as the increase of growth. Only Besley/Burgess (2000) examine the effects of land reforms on poverty in India with quantitative methods and come to the conclusion that land reforms contribute to a reduction of rural poverty.

3. Aim, Methodology and Work Programme

Aim of the Research Project

Aim of the research project is to examine the effects of different allocation strategies on the value of agricultural production (at constant prices) and on labour productivity, as well as on rural poverty in Georgia and Moldavia. Following the theoretical analysis of these effects, the conclusions shall be examined empirically with the help of quantitative and qualitative methods.

Work Programme and Methodology

In a first theoretical part, the neoclassical theory of the undertaking will be expanded by approaches of the New Institutional Economics, in order to arrive at a theoretical basis with the help of which an optimal land reform strategy can be identified. Then, the developments in Georgia and Moldavia will be evaluated with the help of this theoretical optimal strategy.

The examination of the allocation strategies' effects on the agricultural value of production, on labour productivity and poverty shall be implemented in two steps then:

1) In the first step it shall be examined which influence the chosen allocation strategy has had on the decisive land reform parameters privatisation, fragmentation, and development of rural markets. In order to arrive at meaningful results, data of various CIS countries shall be evaluated in cross- and longitudinal section.

2) In the second step it shall be examined which effects the land reform – gauged by the degree of privatisation, individualisation, and fragmentation, as well as by the activity on the rural markets – has had on the value of agricultural production, agricultural labour productivity, and on the rural poverty situation apart from further variables of control. This analysis will be carried out, comparing Georgia and Moldavia. For it, data concerning land reform parameters on a regional level in Georgia and Moldavia shall be collected from statistical offices, NGOs and international organisations. These data will be analysed econometrically using panel data set. In order to verify the results, interviews on the farm level may be conducted on location.

The Effects of Land Reforms on Agricultural Production and Labour Productivity

The analysis of effects on the value of production and on labour productivity will be orientated to the studies of Macours and Swinnen (2000, 2002), which examine the influence land reforms – apart from other variables - have had on these quantities. A function of production, which explains the dependence of the agricultural value of production and the labour productivity of land reforms as well as further control variables, will be examined.

Value of production = f (capital, labour, land, fertiliser, individualisation, privatisation, fragmentation, transactions on rural markets)

Labour productivity = f (individualisation, privatisation, fragmentation, transactions on rural markets, others)

Using this analysis the following hypotheses shall be examined:

1) According to the prevalent theory, it is to be expected that individualisation will have a positive effect on the agricultural value of production and on labour productivity. The transition to individual agriculture should not only theoretically increase labour productivity, but also the intensity with which other factors of production are utilised. In the CIS context it is possible, though, that the factor utilisation has decreased considerably, due to individualisation which was carried out in connection with underdeveloped credit and rural markets and an inadequate infrastructure. Thus lacking funds could have led to decreasing labour productivity and to decreasing output figures which may ultimately lead to a decrease in the production value.

2) Theoretically, the influence of privatisation on the efficiency of factor utilisation and of factor allocation is positive. As in the course of privatisation strict budgeting guidelines are introduced, incentives for efficient economisation are given. Resulting from this, the efficient factor utilisation should lead to an increase in production. Due to the liberalised prices, the abolishment of subsidies and the difficult market situations, though, a decrease of the utilisation of production factors, which is so large that the increase in production can be compensated by the more efficient factor utilisation might be expected.

3) Transactions on rural markets will be included into both equations: the allocation function of markets should make sure that land is transferred to the farmers with the highest marginal productivity and that so the productivity of labour increases. On the other hand, the utilisation of production factors should also change when the land is worked by those farmers who are best at it and who want to farm commercially. Consequently, it is to be expected that the efficiency of allocation as well as of production will improve and that the activity on rural markets will therefore have a positive influence on the value of production and on labour productivity. A misallocation of real estate for unproductive uses cannot be excluded within the context of the CIS, whose rural and credit markets are underdeveloped. In this case the activity on the rural markets would have a negative effect on production and labour productivity.

4) In addition to the individualisation variable, a fragmentation variable shall be included: at a certain degree of fragmentation, individual factors of productivity, e.g. machines, cannot be utilised efficiently and the rotation of crop is no longer possible. Furthermore, the infrastructure in most countries is not laid out for small plots of land, so that, all things considered, a decrease of production efficiency and a reduction of the utilisation of production factors are to be expected. Resulting from this a decrease of labour productivity and a decrease of production value would follow.

Effects of Land Reforms on Poverty

As the explanations regarding the state of research have shown, the examinations of the land reforms' growth or production effects are mostly the focal points. It should not be forgotten, though, that a land reform is also a form of redistribution, which should essentially have a positive effect on rural poverty. Therefore, the effects of land reforms on the degrees of distribution and poverty shall be examined in a second step, before being able to determine in a last step which strategy of allocation has had a more positive effect on poverty and the distribution of incomes in the national economy. The examinations of poverty shall be oriented to the studies of Besley and Burgess (2000), who examine the effects of land reforms on the rural HeadcountIndex (HCI) and on the rural poverty gap (AL) in India:

HCI/AL = f (individualisation, privatisation, parcelling out, transactions, rural markets, agricultural production, population growth, health expenses, educational expenses, others)

The following hypotheses shall be examined:

1) Theoretically, privatisation has a positive effect on the poverty situation, as the rural population experiences an increase of capital through the distribution of land and because it may earn an income by using, selling or leasing land. Due to the expected increase in investments and the multiplier effects connected with this, there should also be an indirect lessening of poverty.

2) In relation to this, the individualisation pursued with privatisation should have a positive influence on the poverty situation, as each farmer is able to produce for his personal requirements at least. Still, the income situation may also worsen under insufficient attendant circumstances (bad infrastructure, underdeveloped credit market), if a petty farmer can hardly cultivate his land and at the same time he does not receive an income or a dividend or pension from a large company any longer.

3) While in many countries of the CIS strong fragmentation leads to an inefficiency of farming, it still contributes to the preservation of jobs in agriculture (even though here the case of hidden unemployment may exist). As long as the remaining sectors of the national economy do not offer other possibilities of work, these jobs can prevent a further intensification of poverty. Thus a conflict between the aim of efficiency and the aim of distribution arises in the case of fragmentation.

4) On a purely theoretical level, the activity on rural markets should work in favour of the poor population, as the poor are often farmers with a family business, whose production should theoretically be the most efficient. In the case of the underdeveloped rural and credit markets, though, it cannot be reckoned with a reallocation of land to these farmers.