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The economic analysis of instrument variables estimation in dynamic optimal models with an application to the water consumption

Author

Listed:
  • Yiming He

    (School of National Agricultural Institution and Development, South China Agricultural University, Guangzhou, Guangdong, China)

  • Thomas M. Fullerton

    (Department of Economics and Finance, University of Texas at El Paso, El Paso, USA)

Abstract

This study examines one of the most important issues in water economic research, namely, the nexus between water consumption and economic growth. Water consumption is determined by the intersection of endogenous growth function and water consumption function, neither function can be consistently identified by comparing average quantities of water consumed at different values of observed real per capita output. The contribution of this study is an investigation of the endogenous nexus between economic output and water consumption. Water consumption function is derived using an optimal dynamic equilibrium model. Two instrument variable models are proposed with real per capita economic output specified as a function of institutional reform and urbanization, which are used to examine the nexus among water consumption, reform, urbanization, and economic growth in Guangzhou, China.

Suggested Citation

  • Yiming He & Thomas M. Fullerton, 2020. "The economic analysis of instrument variables estimation in dynamic optimal models with an application to the water consumption," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 66(9), pages 413-423.
    • Handle: RePEc:caa:jnlage:v:66:y:2020:i:9:id:270-2020-agricecon
    DOI: 10.17221/270/2020-AGRICECON
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    References listed on IDEAS

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