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Growth, Water Resilience, and Sustainability: A DSGE Model Applied to South Africa

Author

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  • Chuan-Zhong Li

    (Department of Economics, Uppsala University, Sweden‡The Beijer Institute, Royal Swedish Academy of Sciences, Sweden§School of Business, Ningbo University, China)

  • Ranjula Bali Swain

    (#x2020;Misum, Stockholm School of Economics and Department of Economics, Södertörn University, Sweden)

Abstract

In this paper, we develop a dynamic stochastic general equilibrium (DSGE) model to study how water resilience affects economic growth and dynamic welfare with special reference to South Africa. While water may become a limiting factor for future development in general, as a drought prone and water poor country with rapid population growth, South Africa may face more serious challenges for sustainable development. Analyzing the DSGE model, we conduct numerical simulations for different parameter configurations with varying discount rate, climate change scenario, and the degree of uncertainty in future precipitation. We find that with sufficient capital accumulation, development may still be sustainable despite increased future water scarcity and decreased long-run sustainable welfare. While stochastic variation in precipitation has a negative effect on water resilience and the expected dynamic welfare, the effect is mitigated by persistence in the precipitation pattern. With heavier time discounting and lower capital formation, however, the current welfare may not be sustained.

Suggested Citation

  • Chuan-Zhong Li & Ranjula Bali Swain, 2016. "Growth, Water Resilience, and Sustainability: A DSGE Model Applied to South Africa," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 2(04), pages 1-23, December.
  • Handle: RePEc:wsi:wepxxx:v:02:y:2016:i:04:n:s2382624x16500223
    DOI: 10.1142/S2382624X16500223
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    References listed on IDEAS

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    Cited by:

    1. Spencer Bastani & Tomer Blumkin & Luca Micheletto, 2016. "Anti-discrimination Legislation and the Efficiency-Enhancing Role of Mandatory Parental Leave," Working Papers 088, "Carlo F. Dondena" Centre for Research on Social Dynamics (DONDENA), Università Commerciale Luigi Bocconi.

    More about this item

    Keywords

    Water resilience; growth; dynamic welfare; sustainability;

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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