Virtual water in global supply chains: Trade structure, industrial composition, and policy levers

Ecological economists and environmental managers use footprint and input-output tools to trace how production and trade redistribute pressure on freshwater systems. We examine how international supply chains transmit green, blue, and grey virtual-water and how these flows relate to countries' development paths. Using the Eora multi-region input-output framework, we construct country-year measures of net and gross embodied-water outflows for 189 countries over 2010–2021 and link them to macro metrics from the World Development Indicators. Our empirical strategy is reduced-form: rather than treating trade values as causal drivers of mechanically constructed virtual-water flows, we relate component-specific virtual-water positions to manufacturing structure, trade openness, water withdrawal capacity, and growth outcomes. Three results stand out. Total water withdrawal is positively associated with blue and grey-water net outflows and with gross outflows of all three components. Manufacturing is most strongly associated with grey-water outflows, consistent with pollution-intensive production. In growth regressions, green and grey-water outflows are positively associated with GDP growth, unlike blue-water outflows, and we find no generic macro-level water resource curse. The findings underscore the need to distinguish rainfall-based, withdrawal-based, and pollution-related water pressures when interpreting embodied-water trade. These results also point towards practical levers in ecological economics: efficiency gains, cleaner production, structural upgrading, and diversified sourcing.