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Water and Economic Growth

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  • Edward B. Barbier

Abstract

Several hydrological studies forecast a global problem of water scarcity. This raises the question as to whether increasing water scarcity may impose constraints on the growth of countries. The influence of water utilisation on economic growth is depicted through a growth model that includes this congestible nonexcludable good as a productive input for private producers. Growth is negatively affected by the government's appropriation of output to supply water but positively influenced by the contribution of increased water use to capital productivity, leading to an inverted-U relationship between economic growth and the rate of water utilisation. Cross-country estimations confirm this relationship and suggest that for most economies current rates of fresh water utilisation are not yet constraining growth. However, for a handful of countries, moderate or extreme water scarcity may adversely affect economic growth. Nevertheless, even for water-scarce countries, there appears to be little evidence that there are severe diminishing returns to allocating more output to provide water, thus resulting in falling income per capita. These results suggest caution over the claims of some hydrological-based studies of a widespread global 'water crisis'. Copyright © 2004 Economic Society of Australia..

Suggested Citation

  • Edward B. Barbier, 2004. "Water and Economic Growth," The Economic Record, The Economic Society of Australia, vol. 80(248), pages 1-16, March.
  • Handle: RePEc:bla:ecorec:v:80:y:2004:i:248:p:1-16
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    Cited by:

    1. Fang, Xiangming & Roe, Terry L. & Smith, Rodney B.W., 2006. "Water Shortages, Water Allocation and Economic Growth: The Case of China," Conference Papers 6629, University of Minnesota, Center for International Food and Agricultural Policy.
    2. Bhaduri, Anik & Perez, Nicostrato D. & Liebe, Jens, 2008. "Scope and Sustainability of Cooperation in Transboundary Water Sharing of the Volta River," Discussion Papers 43324, University of Bonn, Center for Development Research (ZEF).
    3. McCartney, Matthew & Smakhtin, Vladimir, 2010. "Water storage in an era of climate change: addressing the challenge of increasing rainfall variability. Blue paper," IWMI Reports 212430, International Water Management Institute.
    4. Lenzen, Manfred & Bhaduri, Anik & Moran, Daniel & Kanemoto, Keiichiro & Bekchanov, Maksud & Geschke, Arne & Foran, Barney, 2012. "The role of scarcity in global virtual water flows," Discussion Papers 133478, University of Bonn, Center for Development Research (ZEF).
    5. Antti Simola & Juntunen, Janne & Meriläinen, Päivi, 2016. "Contaminants and pathogens in waterways - economic assessment of risks," EcoMod2016 9442, EcoMod.
    6. Elisa Gatto & Matteo Lanzafame, 2005. "Water resource as a factor of production - water use and economic growth," ERSA conference papers ersa05p227, European Regional Science Association.
    7. Barbier,Edward B., 2007. "Natural Resources and Economic Development," Cambridge Books, Cambridge University Press, number 9780521706513.
    8. Bhaduri, Anik & Manna, Utpal & Barbier, Edward B. & Liebe, Jens, 2009. "Cooperation in transboundary water sharing under climate change," Discussion Papers 51303, University of Bonn, Center for Development Research (ZEF).

    More about this item

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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