On the Evolution and Determinants of Water Efficiency in the Regions of Spain

Economic growth in Spain has largely relied on certain water-intensive sectors including construction, leisure, and agriculture; but considerable heterogeneity is found across the country’s regions, both in terms of water stress and economic structure. Using Data Envelopment Analysis and a panel Tobit model, we analyze the determinants of water efficiency in Spain, differentiating by groups of agents (companies, households, and municipalities) and paying particular attention to inter-regional differences and specifically the sectoral structure of the various regions. To the best of our knowledge, such an analysis has never before been conducted with a focus on Spain’s economy. Moreover, we emphasize the importance of considering the circular aspects of water management by including treated wastewater and recycled water in our analysis. We argue that this approach provides more credible and accurate measures of efficiency as well as more robust results around the key driving and explanatory factors. Our analysis reveals that water efficiency has a very significant inertia component with respect to one-year and even two-year lags, and this is found to react positively to water scarcity. Moreover, water efficiency depends on income in a nonlinear way, and it is sensitive to the economic structures of the diverse regions, with more efficient regions tending to export more at the national level. In terms of policy implications, our results provide an empirical basis from which to advocate for water tariffication as a means to spur efficiency.