Development outcomes of land tenure formalization under customary and statutory land tenure systems in Tanzania: a multinomial endogenous switching regression approach

Abstract Background Land Tenure Formalization (LTF) is long advocated as a policy prescription that fosters growth and reduces poverty in developing countries. However, the empirical evidence on LTF effects is mixed and inconclusive, proving unclear implications for policy. A set of possible conceptual and methodological flaws arising from treating LTF as a dichotomy between formalized and non-formalized alongside potential selectivity biases are amongst the main explanations for the mixed and inconclusive results. Using Tanzania’s National Panel Survey data from the 2014/2015 wave and employing a Selectivity Corrected Multinomial Endogenous Switching Regression, this study models the development outcomes of LTF with clear distinction of LTF between customary and statutory land tenure systems in Tanzania. Findings The study finds that possession of formal land tenure certificates [Certificate of Customary Right of Occupancy (CCRO) or Certificate of Granted Right of Occupancy (CGRO)] improves perceived land tenure security, but the effect is relatively larger and more significant for CGRO holders than CCRO holders especially in economically high potential areas, where land is becoming more individualized and commoditized. With regard to credit access, our results show variations in the effects between general, formal, and informal credit access. While there is no significant effect of LTF on general access to credit, possessing a CGRO significantly reduces the uptake of informal credit and appears to improve access to formal credit. With regard to land investments, our results show positive and significant effects of LTF on organic and inorganic fertilizer use as well as trees and permanent crops investments, but only for CGRO plots. Conclusions The study concludes that the effects of LTF differ significantly between the land tenure systems, thus, treating LTF as a dichotomy between formalized and non-formalized is an oversimplification that could potentially mislead policy decisions. Therefore, the study recommends that the design, implementation and evaluation of LTF programs should recognize this distinction for greater clarity about LFT effects and more meaningful policy messages. The study, further, recommends strategic land policy interventions that aim to enhance land tenure security, especially in high potential areas for more socio-economically optimal outcomes of the interventions.