An economic analysis of the relation of farm land values and returns

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1983
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Flowers, Gwendolyn
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Economics

The Department of Economic Science was founded in 1898 to teach economic theory as a truth of industrial life, and was very much concerned with applying economics to business and industry, particularly agriculture. Between 1910 and 1967 it showed the growing influence of other social studies, such as sociology, history, and political science. Today it encompasses the majors of Agricultural Business (preparing for agricultural finance and management), Business Economics, and Economics (for advanced studies in business or economics or for careers in financing, management, insurance, etc).

History
The Department of Economic Science was founded in 1898 under the Division of Industrial Science (later College of Liberal Arts and Sciences); it became co-directed by the Division of Agriculture in 1919. In 1910 it became the Department of Economics and Political Science. In 1913 it became the Department of Applied Economics and Social Science; in 1924 it became the Department of Economics, History, and Sociology; in 1931 it became the Department of Economics and Sociology. In 1967 it became the Department of Economics, and in 2007 it became co-directed by the Colleges of Agriculture and Life Sciences, Liberal Arts and Sciences, and Business.

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1898–present

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  • Department of Economic Science (1898–1910)
  • Department of Economics and Political Science (1910-1913)
  • Department of Applied Economics and Social Science (1913–1924)
  • Department of Economics, History and Sociology (1924–1931)
  • Department of Economics and Sociology (1931–1967)

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Abstract

This study is an evaluation of the relation between farm land values and the returns to farm land. The primary motivation for this study has been to explain the observed relation between farm land values and returns which has in some years been contradictory to the suggested theoretical relation between land values and returns. The primary objective of this study has been to examine the importance of growth of the returns to farm land in explaining the historical levels of farm land and its relationship with the returns to farm land. Data were collected on the values of cash rented farms and estimates of gross cash rents paid on those for 24 states for the period 1929-1980. Twelve states were selected for analysis. The 12 states were Ohio, Indiana, Illinois, Iowa, Missouri, Pennsylvania, Michigan, South Dakota, Minnesota, Wisconsin, North Dakota, and Oklahoma;The theoretical land value model was developed from the present value approach for determining values. The explanatory variables identified from this approach are the returns to farm land, the capitalization rate, the growth rate of the returns to farm land, the inflation rate, inflation rate, and taxes. Because of lack of data, taxes are not included in the empirical models;The empirical models to determine the association between the explanatory variables and farm land values were estimated by regression analysis. Two basic sets of regression were estimated; one using farm land value per acre as the dependent variable and one using the ratio of gross cash rent to farm land value as the dependent variable. The results of the empirical models indicate that gross cash rents are strongly related to farm land values. In general, the growth rate of gross cash rents did not perform as expected. The coefficient on nominal and real growth rates was significantly different from zero but did not have the correct sign. The coefficients on the lagged growth rates were found to be not significantly different from zero. The general rise in the price level did not appear to have a significant impact on the nominal or real value of farm land. The capitalization factor was found to be statistically significant in estimating the rent-to-value ratio;Granger causality tests were also applied to the data. Overall, the results did not support the hypothesis that gross cash rents "caused," in the Granger sense, farm land values.

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Sat Jan 01 00:00:00 UTC 1983