Increases in Land Price and Liquidity Gap between Beginning and Existing Farmers

Abstract

Land price has increased significantly in recent years, affecting the liquidity gap between beginning farmers and existing farmers. The liquidity gap could result in widening inequalities in land size, asset gaps and loan alienation of beginning farmers. Using two 5-year farm-level panel dataset from the Korean Farm Household Economy Survey, this paper estimates the effect of increases in land price on borrowing with a developed identification strategy. Based on the estimates, this paper analyzes the extent of the liquidity gap between beginning farmers and existing farmers due to increases in land price. The results show that a 1% increase in farmland wealth is associated with farmers’ borrowing increase by 1.82%. The results also indicate that a 20% increase in farmland wealth leads to a 6.6 million won in liquidity gap between beginning farmers and existing farmers.