Land price diffusion across borders – The case of Germany Aaron Grau, Martin Odening, and Matthias Ritter Humboldt-Universität zu Berlin, Faculty of Life Sciences, Department of Agricultural Economics, Unter den Linden 6, 10099 Berlin, Germany
[email protected] Paper prepared for presentation at the 165. EAAE Seminar ‘Agricultural Land Markets – Recent Developments, Efficiency and Regulation’ Humboldt-Universität zu Berlin, Germany, April 4-5, 2019 Copyright 2019 by Grau, Odening and Ritter. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies. Land price diffusion across borders – The case of Germany Aaron Grau, Martin Odening, and Matthias Ritter Land market regulations are often justified by the assumption that activities of foreign and non- agricultural investors drive up prices in domestic land markets. However, empirical knowledge about the dynamics of agricultural land prices across borders is sparse. Using the German reunification as a natural experiment, we study the effect of the former inner German border on the dynamics of agricultural land prices in East and West Germany. We apply a land price diffusion model with an error correction specification to analyze spatial agricultural land markets. A novel feature of our model is its ability to distinguish price diffusion within states and across state borders. We provide evidence for a persistent border effect given that the fraction of spatially integrated counties is larger within states than across the former border. Moreover, we observe non-significant error correction terms for many counties along the former border.