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European Review of Agricultural Economics Advance Access published online on June 14, 2007
European Review of Agricultural Economics, doi:10.1093/erae/jbm018
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© Oxford University Press and Foundation for the European Review of Agricultural Economics 2007; all rights reserved. For permissions, please email journals.permissions@oxfordjournals.org

Farmland prices, structural breaks and panel data

Luciano Gutierrez

University of Sassari, Italy

Joakim Westerlund

Lund University, Sweden

Kenneth Erickson

US Department of Agriculture, Economic Research Service, Washington, DC, USA

Corresponding author: Luciano Gutierrez, Department of Agricultural Economics, University of Sassari, Via E. De Nicola 1, Sassari 07100, Italy. E-mail: lgutierr{at}uniss.it

Received February 2006; final version received March 2007

Previous time series evidence has indicated that farmland prices and cash rents are not cointegrated, a finding at odds with the present value model of farmland prices. We argue that this failure to find cointegration may be due to low power of tests and to the presence of structural change representing a shifting risk premium on farmland investments. To accommodate this possibility, we use panel unit root and cointegration methods that are more powerful than conventional time series methods and allow for breaks in the cointegration relationship. Our results, based on a large panel covering 31 US states between 1960 and 2000, suggest that the present value model of farmland prices cannot be rejected.

Keywords: farmland prices, present value model, non-stationary panel data analysis, structural breaks

JEL classification: C23, G12, Q14


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