In the course of economic growth, an economy incurs a structural transformation along which the share of agriculture in employment and GDP declines sharply. This creates a “transformation rent” when land is correspondingly retired from agriculture to be used for housing and industrial development. In China, with lack of property rights over land for farmers, this rent has been appropriated by local governments and used to finance the public goods necessary for urbanization and industrialization. In Mexico, where property rights were assigned to farmers, this rent is privately appropriated by land reform beneficiaries. In China, this has created huge conflicts, but successfully financed the structural transformation and contributed to rapid economic growth. In Mexico, a peaceful transformation is being achieved, but at the cost of severe under-investment in public goods for the transformation. This role of property rights in the structural transformation has remained relatively under-studied, resulting in sub-optimal social and/or fiscal support for the transformation. Yet, it potentially has huge policy implications that need to be addressed.
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