How does the location and cost of land determine how rural and agricultural land is used?
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Answer:
. An asset-pricing model is used to decompose agricultural land prices into expected returns from land in its current agricultural use and expected returns from its potential use. The model is estimated in a cross regional context where explanatory factors relate to regional variations in land productivity, agricultural support payments and urbanising influences. Results indicate that both agricultural and non-agricultural factors are influential determinants to the price of agricultural land. Estimating marginal effects across the distribution of the dependent variable, non-agricultural factors are shown to be more important in regions that have high agricultural land prices, whereas, income support to farmers in the form of the decoupled single farm payment is shown to be most influential in regions with low agricultural land prices.