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Macro–micro feedback links of water management in South Africa: CGE analyses of selected policy regimes

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  • Rashid Hassan
  • James Thurlow

Abstract

The pressure on an already stressed water situation in South Africa is predicted to increase significantly under climate change, plans for large industrial expansion, observed rapid urbanization, and government programs to provide access to water to millions of previously excluded people. The present study employed a general equilibrium approach to examine the economy-wide impacts of selected macro and water related policy reforms on water use and allocation, rural livelihoods, and the economy at large. The analyses reveal that implicit crop-level water quotas reduce the amount of irrigated land allocated to higher-value horticultural crops and create higher shadow rents for production of lower-value, water-intensive field crops, such as sugarcane and fodder. Accordingly, liberalizing local water allocation in irrigation agriculture is found to work in favor of higher-value crops, and expand agricultural production and exports and farm employment. Allowing for water trade between irrigation and non-agricultural uses fueled by higher competition for water from industrial expansion and urbanization leads to greater water shadow prices for irrigation water with reduced income and employment benefits to rural households and higher gains for non-agricultural households. The analyses show difficult tradeoffs between general economic gains and higher water prices, making irrigation subsidies difficult to justify.

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Bibliographic Info

Article provided by International Association of Agricultural Economists in its journal Agricultural Economics.

Volume (Year): 42 (2011)
Issue (Month): 2 (03)
Pages: 235-247

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Handle: RePEc:bla:agecon:v:42:y:2011:i:2:p:235-247

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  1. Roe, Terry & Dinar, Ariel & Tsur, Yacov & Diao, Xinshen, 2005. "Feedback links between economy-wide and farm-level policies: With application to irrigation water management in Morocco," Journal of Policy Modeling, Elsevier, vol. 27(8), pages 905-928, November.
  2. Thurlow, James & van Seventer, Dirk Ernst, 2002. "A standard computable general equilibrium model for South Africa," TMD discussion papers 100, International Food Policy Research Institute (IFPRI).
  3. Matete, Mampiti & Hassan, Rashid, 2006. "Integrated ecological economics accounting approach to evaluation of inter-basin water transfers: An application to the Lesotho Highlands Water Project," Ecological Economics, Elsevier, vol. 60(1), pages 246-259, November.
  4. Daniela Casale & Colette Muller & Dorrit Posel, 2004. "'Two Million Net New Jobs': A Reconsideration Of The Rise In Employment In South Africa, 1995-2003," South African Journal of Economics, Economic Society of South Africa, vol. 72(5), pages 978-1002, December.
  5. Dorrit Posel & Daniela Casale, 2003. "What has been happening to Internal Labour Migration in South Africa, 1993-1999?," Working Papers 03074, University of Cape Town, Development Policy Research Unit.
  6. David Finnoff & Arthur Caplan, 2004. "A Bioeconomic Model of the Great Salt lake Watershed," Working Papers 2004-14, Utah State University, Department of Economics.
  7. Maria Berrittella & Katrin Rehdanz & Richard S.J. Tol, 2006. "The Economic Impact Of The South-North Water Transfer Project In China: A Computable General Equilibrium Analysis," Working Papers FNU-117, Research unit Sustainability and Global Change, Hamburg University, revised Sep 2006.
  8. Johansson, Robert C., 2005. "Micro and macro-level approaches for assessing the value of irrigation water," Policy Research Working Paper Series 3778, The World Bank.
  9. Esther Velázquez & M. Alejandro Cardenete & Geoffrey J.D. Hewings, 2007. "Water price and water reallocation in Andalusia. A computable general equilibrium approach," Working Papers 07.04, Universidad Pablo de Olavide, Department of Economics.
  10. Noelwah R. Netusil & Thomas R. Harris & Chang K. Seung & Jeffrey E. Englin, 2000. "Impacts of water reallocation: A combined computable general equilibrium and recreation demand model approach," The Annals of Regional Science, Springer, vol. 34(4), pages 473-487.
  11. Deborah Peterson & Gavan Dwyer & David Appels & Jane Fry, 2005. "Water Trade in the Southern Murray-Darling Basin," The Economic Record, The Economic Society of Australia, vol. 81(s1), pages S115-S127, 08.
  12. Choe, Chung & Chrite, E. LaBrent, 2009. "Internal Migration of Blacks in South Africa: Self-selection and Brain Drain," IRISS Working Paper Series 2009-06, IRISS at CEPS/INSTEAD.
  13. Diao, Xinshen & Roe, Terry & Doukkali, Rachid, 2005. "Economy-wide gains from decentralized water allocation in a spatially heterogenous agricultural economy," Environment and Development Economics, Cambridge University Press, vol. 10(03), pages 249-269, June.
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Cited by:
  1. Dinar, Ariel, 2012. "Economy-wide implications of direct and indirect policy interventions in the water sector: lessons from recent work and future research needs," Policy Research Working Paper Series 6068, The World Bank.
  2. Scheierling, Susanne M., 2011. "Assessing the direct economic effects of reallocating irrigation water to alternative uses : concepts and an application," Policy Research Working Paper Series 5797, The World Bank.
  3. Roberto Ponce & Francesco Bosello & Carlo Giupponi, 2012. "Integrating Water Resources into Computable General Equilibrium Models - A Survey," Working Papers 2012.57, Fondazione Eni Enrico Mattei.
  4. Gill, Tania & Punt, Cecilia, 2010. "The Potential Impact of Increased Irrigation Water Tariffs in South Africa," 2010 AAAE Third Conference/AEASA 48th Conference, September 19-23, 2010, Cape Town, South Africa 96425, African Association of Agricultural Economists (AAAE) & Agricultural Economics Association of South Africa (AEASA).

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