The Dewatering of Economic Growth: What Accounts for the Declining Water‐Use Intensity of Income?

Recent research has found an inverted U relationship between freshwater use and income after controlling for freshwater availability, the structure of the economy, and several policy variables. This suggests that the intensity of freshwater use must be declining with income growth. This hypothesis is tested by developing a simple, informal model of the determinants of freshwater‐use intensities across countries and over time. Results suggest that water‐use intensity declines across the entire range of per capita incomes extant in the world today. They also show that the relationship between intensity of use and income is mediated by an economy's natural water endowment, the structure of the economy, and government policies. Four policies, in particular, affect the water‐use intensity of economies. Open trade policies and tough environmental regulatory policies lower water use intensities, and narrowly defined food self‐sufficiency policies and socialist development policies increase water‐use intensities. These findings suggest that those interested in water, water scarcity, and water policy need to extend beyond simple extrapolations of past consumption patterns and narrowly focused water policies (such as water pricing) if they want to improve water management practices.