Reexamining the role of land in economic growth

Abstract

This paper reconciles the traditional view that land increases the wealth of nations with recent empirical findings that point out that natural inputs such as land are negatively related to growth. Our theory shows, whithin a two-sector neoclassical growth model with international trade in goods, that land directly affects both long-run income and transitional growth. These two effects can be positive or negative depending on input elasticities. Furthermore, they go in opposite directions, creating a tension that complicates the interpretation of estimated-coefficient signs in growth regressions. Quantitative results show that the two effects can be significant. We also produce empirical evidence that suggests a negative effect of land per worker on growth, but a positive impact on long-run income.