Optimal sequencing of land and credit market reforms in developing countries : a theoretical perspective

First, we show that prior to the establishment of an integrated national credit market, limitations on land transfer rights may increase efficiency by diversifying risk within each segment of the credit market. Second, we consider a novel mechanism that provides a partial substitute for land as collateral and show that it has the potential to make everyone better off. Although the mechanism creates a distortion in the labor market, it mitigates information problems that create inefficiencies arising in the credit market. (Author abstract)