Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/213057 
Year of Publication: 
2018
Series/Report no.: 
FORLand-Working Paper No. 03 (2018)
Publisher: 
Humboldt-Universität zu Berlin, DFG Research Unit 2569 FORLand "Agricultural Land Markets - Efficiency and Regulation", Berlin
Abstract: 
Land market regulations are often justified by the assumption that activities of foreign and non-agricultural investors drive up land prices in countries with low land price levels. However, empirical knowledge about the dynamics of agricultural land prices across borders is sparse. Using the German reunification as a natural experiment, we study the effect of the former inner German border on the dynamics of agricultural land prices in East and West Germany. We apply a land price diffusion model with an error correction specification that estimates to what extent agricultural land markets are spatially integrated. A novel feature of our model is its ability to distinguish price diffusion within states and across state borders. We find that local agricultural land markets in Germany are linked by a long-run equilibrium relationship. Spatial market integration, however, does not hold among all counties in our study area. Regarding our main research question, we provide evidence for a persistent border effect given that the fraction of spatially integrated counties is larger within states than across the former border. Moreover, we observe non-significant error correction terms for many counties along the former border. From a policy perspective, it is striking to realize that even 25 years after German reunification, pronounced land price differences persist. It is quite likely that price diffusion through existing borders within the EU would take even more time given language barriers, different administrative procedures for land acquisitions, different tax systems, and information asymmetries between domestic and foreign market participants.
Subjects: 
Agricultural land markets
price diffusion
spatial dependence
border effect
JEL: 
Q24
C23
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper

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