IDEAS home Printed from https://ideas.repec.org/p/sgc/wpaper/93.html
   My bibliography  Save this paper

The Economic Impact Of Restricted Water Supply: A Computable General Equilibrium Analysis

Author

Listed:
  • Maria Berrittella
  • Katrin Rehdanz
  • Arjen Y. Hoekstra
  • Roberto Roson
  • Richard S.J. Tol

    (Economic and Social Research Institute, Dublin)

Abstract

Water problems are typically studied at the level of the river catchment. About 70% of all water is used for agriculture, and agricultural products are traded internationally. A full understanding of water use is impossible without understanding the international market for food and related products, such as textiles. The water embedded in commodities is called virtual water. Based on a general equilibrium model, we offer a method for investigating the role of water resources and water scarcity in the context of international trade. We run five alternative scenarios, analysing the effects of water scarcity due to reduced availability of groundwater. This can be a consequence of physical constraints, and of policies curbing water demand. Four scenarios are based on a “market solution”, where water owners can capitalize their water rent or taxes are recycled. In the fifth “non-market” scenario, this is not the case; supply restrictions imply productivity losses. Restrictions in water supply would shift trade patterns of agriculture and virtual water. These shifts are larger if the restriction is larger, and if the use of water in production is more rigid. Welfare losses are substantially larger in the non-market situation. Water-constrained agricultural producers lose, but unconstrained agricultural produces gain; industry gains as well. As a result, there are regional winners and losers from water supply constraints. Because of the current distortions of agricultural markets, water supply constraints could improve allocative efficiency; this welfare gain may more than offset the welfare losses due to the resource constraint.

Suggested Citation

  • Maria Berrittella & Katrin Rehdanz & Arjen Y. Hoekstra & Roberto Roson & Richard S.J. Tol, 2006. "The Economic Impact Of Restricted Water Supply: A Computable General Equilibrium Analysis," Working Papers FNU-93, Research unit Sustainability and Global Change, Hamburg University, revised Jul 2006.
    • Handle: RePEc:sgc:wpaper:93
    as

    Download full text from publisher

    File URL: http://www.fnu.zmaw.de/fileadmin/fnu-files/publication/working-papers/FNU93_rev.pdf
    File Function: First version, 2006
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Goodman, D. Jay, 2000. "More Reservoirs Or Transfers? A Computable General Equilibrium Analysis Of Projected Water Shortages In The Arkansas River Basin," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 25(2), pages 1-16, December.
    2. Wolfram Schlenker & W. Michael Hanemann & Anthony C. Fisher, 2005. "Will U.S. Agriculture Really Benefit from Global Warming? Accounting for Irrigation in the Hedonic Approach," American Economic Review, American Economic Association, vol. 95(1), pages 395-406, March.
    3. 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;Western Regional Science Association, vol. 34(4), pages 473-487.
    4. Decaluwe, B. & Patry, A. & Savard, L., 1999. "`When Water Is No Longer Heaven Sent: Comparative Pricing Analysis in an AGE Model," Papers 9905, Laval - Recherche en Politique Economique.
    5. de Fraiture, Charlotte & Cai, X & Amarasinghe, Upali & Rosegrant, M. & Molden, David, 2004. "Does international cereal trade save water?: the impact of virtual water trade on global water use," IWMI Research Reports H035342, International Water Management Institute.
    6. Dinar, Ariel & Yaron, Dan, 1992. "Adoption and abandonment of irrigation technologies," Agricultural Economics, Blackwell, vol. 6(4), pages 315-332, April.
    7. Wichelns, Dennis, 2004. "The policy relevance of virtual water can be enhanced by considering comparative advantages," Agricultural Water Management, Elsevier, vol. 66(1), pages 49-63, April.
    8. Burniaux, Jean-Marc & Truong Truong, 2002. "GTAP-E: An Energy-Environmental Version of the GTAP Model," GTAP Technical Papers 923, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
    9. Burniaux, Jean-March & Truong, Truong P., 2002. "Gtap-E: An Energy-Environmental Version Of The Gtap Model," Technical Papers 28705, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    10. Yang, Hong & Zehnder, Alexander J. B., 2002. "Water Scarcity and Food Import: A Case Study for Southern Mediterranean Countries," World Development, Elsevier, vol. 30(8), pages 1413-1430, August.
    11. Bouwer, Herman, 2000. "Integrated water management: emerging issues and challenges," Agricultural Water Management, Elsevier, vol. 45(3), pages 217-228, August.
    12. Diao, Xinshen & Roe, Terry, 2003. "Can a water market avert the "double-whammy" of trade reform and lead to a "win-win" outcome?," Journal of Environmental Economics and Management, Elsevier, vol. 45(3), pages 708-723, May.
    13. Hertel, Thomas, 1997. "Global Trade Analysis: Modeling and applications," GTAP Books, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, number 7685, December.
    14. Hakimian Hassan, 2003. "Water Scarcity and Food Imports: An Emperical Investigation of the 'Virtual Water' Hypothesis in the MENA Region," Review of Middle East Economics and Finance, De Gruyter, vol. 1(1), pages 70-84, January.
    15. de Fraiture, Charlotte & Cai, Ximing & Amarasinghe, Upali A. & Rosegrant, Mark W. & Molden, David J., 2004. "Does international cereal trade save water? The impact of virtual water trade on global water use," IWMI Research Reports 92832, International Water Management Institute.
    16. Ariel Dinar & Dan Yaron, 1992. "Adoption and abandonment of irrigation technologies," Agricultural Economics, International Association of Agricultural Economists, vol. 6(4), pages 315-332, April.
    17. Wichelns, Dennis, 2001. "The role of `virtual water' in efforts to achieve food security and other national goals, with an example from Egypt," Agricultural Water Management, Elsevier, vol. 49(2), pages 131-151, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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 2006.154, Fondazione Eni Enrico Mattei.
    2. Dimaranan, Betina & Duc, Le Thuc & Martin, Will, 2005. "Potential Economic Impacts of Merchandise Trade Liberalization under Viet Nam’s Accession to the WTO," Conference papers 331403, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    3. Alvaro Calzadilla & Katrin Rehdanz & Richard S.J. Tol, 2008. "The Eonomic Impact Of More Sustainable Water Use In Agriculture: A Computable General Equilibrium Analysis," Working Papers FNU-169, Research unit Sustainability and Global Change, Hamburg University, revised Dec 2008.
    4. Calzadilla, Alvaro & Rehdanz, Katrin & Tol, Richard S.J., 2008. "Water scarcity and the impact of improved irrigation management: A CGE analysis," Conference papers 331788, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    5. Berrittella, Maria & Rehdanz, Katrin & Roson, Roberto & Tol, Richard S.J., 2007. "The Economic Impact of Water Taxes: A Computable General Equilibrium Analysis with an International Data Set," Conference papers 331655, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    6. Maria Berrittella & Katrin Rehdanz & Roberto Roson & Richard S.J. Tol, 2006. "The Economic Impact Of Water Pricing: A Computable General Equilibrium Analysis," Working Papers FNU-96, Research unit Sustainability and Global Change, Hamburg University, revised Jan 2006.
    7. Palatnik, Ruslana & Shechter, Mordechai, 2008. "Can Climate Change Mitigation Policy be Beneficial for the Israeli Economy? A Computable General Equilibrium Analysis," Conference papers 331792, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    8. Kuiper, Marijke, 2007. "What if not all land is created equal? The role of heterogeneous land when assessing the impact of trade liberalization on developing countries," Conference papers 331658, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    9. Nicholas Kilimani, 2014. "Water Taxation and the Double Dividend Hypothesis," Working Papers 201451, University of Pretoria, Department of Economics.
    10. Marta Antonelli & Martina Sartori, 2014. "Unfolding the Potential of the Virtual Water Concept. What is still under debate?," IEFE Working Papers 74, IEFE, Center for Research on Energy and Environmental Economics and Policy, Universita' Bocconi, Milano, Italy.
    11. Yang, Hong & Wang, Lei & Zehnder, Alexander J.B., 2007. "Water scarcity and food trade in the Southern and Eastern Mediterranean countries," Food Policy, Elsevier, vol. 32(5-6), pages 585-605.
    12. Dennis Wichelns, 2010. "Virtual Water: A Helpful Perspective, but not a Sufficient Policy Criterion," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 24(10), pages 2203-2219, August.
    13. Dik Roth & Jeroen Warner, 2008. "Virtual water: Virtuous impact? The unsteady state of virtual water," Agriculture and Human Values, Springer;The Agriculture, Food, & Human Values Society (AFHVS), vol. 25(2), pages 257-270, June.
    14. María Jesús Beltrán & Esther Velázquez, 2011. "Del metabolismo social al metabolismo hídrico," Documentos de Trabajo de la Asociación de Economía Ecológica en España 01_2011, Asociación de Economía Ecológica en España.
    15. Anne Briand, 2008. "Les Tarifications Au Coût Marginal Versus Coût Moyen Face À Des Chocs Climatiques Au Sénégal : Un Modèle Dynamique D'Équilibre Général Calculable Appliqué À L'Eau," Post-Print hal-02430398, HAL.
    16. Calzadilla, Alvaro & Rehdanz, Katrin & Tol, Richard S.J., 2011. "The GTAP-W model: Accounting for water use in agriculture," Kiel Working Papers 1745, Kiel Institute for the World Economy (IfW Kiel).
    17. Esther Velázquez & Cristina Madrid & María Beltrán, 2011. "Rethinking the Concepts of Virtual Water and Water Footprint in Relation to the Production–Consumption Binomial and the Water–Energy Nexus," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 25(2), pages 743-761, January.
    18. Rehdanz, Katrin & Berrittella, Maria & S.J. Tol, Richard & Zhang, Jian, 2008. "The Impact of Trade Liberalization on Water Use: A Computable General Equilibrium Analysis," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 23, pages 631-655.
    19. Qadir, M. & Sharma, B.R. & Bruggeman, A. & Choukr-Allah, R. & Karajeh, F., 2007. "Non-conventional water resources and opportunities for water augmentation to achieve food security in water scarce countries," Agricultural Water Management, Elsevier, vol. 87(1), pages 2-22, January.
    20. Strzepek, Kenneth M. & Yohe, Gary W. & Tol, Richard S.J. & Rosegrant, Mark W., 2008. "The value of the high Aswan Dam to the Egyptian economy," Ecological Economics, Elsevier, vol. 66(1), pages 117-126, May.

    More about this item

    Keywords

    Computable General Equilibrium; Sustainable Water Supply; Virtual Water; Water Scarcity;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Lists

    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. Virtual water in Wikipedia English

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sgc:wpaper:93. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Uwe Schneider (email available below). General contact details of provider: https://edirc.repec.org/data/zmhamde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.