Agro-pastoral areas in Ethiopia have been targeted by large-scale land investments, particularly for the establishment of sugar plantations, since the 1970s. This has led to the displacement of local communities. We investigate the impact of this displacement due to large-scale land investment on land degradation in semiarid agro-pastoral areas in Ethiopia. We conducted a survey of 866 households in two agro-pastoral sites in Ethiopia in 2019, where extensive large-scale land investment was implemented. We use an endogenous (switching) treatment model to assess the effect of the displacement of households on land degradation. The result shows that 75% of the surveyed households experienced moderate–severe land degradation. Forestlands and grasslands are ranked as the most degraded areas. About 43.7% of the households face a reduction in herd size and 55.8% lost land due to large-scale land investment, while 86% of the households show a substantial decline in crops and livestock productivity due to land degradation. The results also reveal that the displacement of households leads to a significant increase in land degradation. Household exposure to drought and conflict, the number of livestock, overgrazing, and sharecropping are other drivers of land degradation. Market access, extension services, household income, and mobility, on the other hand, limit the occurrence of land degradation. We conclude that the shifts in property rights from common land used by pastoralists to private land in large-scale plantations aggravate land degradation in semiarid drylands.