Water Scarcity in South Asia: A Dynamic Computable General Equilibrium Analysis

The economy of South Asia faces serious challenges in water availability, which are expected to aggravate over the coming decades. In this context, we assess the long-run economy-wide impact of potential water scarcity in South Asia within a global context. This paper uses a dynamic Computable General Equilibrium (CGE) model, in tandem with an advanced comparative static CGE model, to examine the differences in economic growth possibilities in South Asia with and without water scarcity. Alternative assumptions on substitution between water and other inputs are considered. Our analysis shows that water scarcity is likely to affect economic growth of entire South Asian region adversely, more so in the future years. The potential losses for not pursuing productivity improvements in water use are huge, ranging from 7% to 45% of the potential GDP in 2030. Further looking at the sectoral impacts, we also find that water scarcity generates larger price impacts, particularly in the food sectors, in the medium term.