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Working Paper No. 575 | August 2009

Market Failure and Land Concentration

Utilizing a 2002 household-level World Bank Survey for rural Turkey, this paper explores the link between concentration of land ownership and rural factor markets. We construct a unique index that measures market malfunctioning based on the neoclassical model linking land and labor endowments through factor markets to household income. We further test whether land ownership concentration affects market malfunctioning. Our empirical investigation supports the claim that factor markets are structurally limited in reducing existing inequalities as a result of land ownership concentration. Our findings show that in the presence of land ownership inequality, malfunctioning rural factor markets result in increased land concentration, increased income inequality, and inefficient resource allocation. This work fills an important empirical gap within the development literature and establishes a positive association between asset inequality and factor market failure.

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