Tenure Security and Long-term Investment on Tenanted Land: Evidence from Colonial Taiwan

We use farm diary data from Taiwan in the 1920s and 1930s to estimate the impacts of a state-wide tenancy reform on tenants' investment in the farmland and production outcome. The reform, commencing in 1922, enhanced the tenure security for the tenants by promoting written contracts that extended tenure length from 1 year to 5-6 years, and by establishing government-sponsored organizations for dispute settlements. Our estimations rely on a difference-in-difference framework, where self-cultivated farms are used as the control group. We find that the reform encouraged tenants to make investments in the irrigation and drainage system of the farms, which is expected to have long-lasting benefits for production. The improved irrigation/drainage system led to significant efficiency gains for the farms. In contrast, the reform did not affect tenants' usage of fertilizer much, which benefits production for only a crop season or a year.