Misallocation of Land

Misallocation of resources, human as well as land, are binding constraints on economic growth. This chapter is dedicated to grotesque misallocation of land in Pakistan. Contrary to South Korea, Taiwan, and India, the experiment of land reforms remained ineffective due to political economy factors. Around 6 % of the farm area was distributed as a result of land reforms in Pakistan. Data of agricultural census for various categories of landholdings is analyzed. A negative relationship between the farm area and cultivated area is observed pointing toward the validity of the hypothesis that small land farms are more efficient. Small and medium-sized landholders are cultivating over 90 % of the area in contrast to large landholders who are cultivating almost half of the farm area, hence a case for redistribution of land. Besides agricultural land, prime urban land, owned by the state, has been put to sub-optimal use by building offices and housing colonies on such land, practically rendering it to dead capital from economic growth perspective. If this land is used for alternative purposes, huge dividends can be reaped through increase in economic growth and employment opportunities. Further, the state land distributed among the army and civil bureaucracy has got no justification on equity, efficiency, and legal grounds. The security of property rights and allocation of property are distinguished as two separate concepts. The efficacy of the institution of the security of property rights for economic growth is undoubtedly very important. However, reallocation of land, amassed through rent seeking or conferrals by the colonists or state for so-called ‘services rendered’ has also got a valid case.