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Marginal Productivity Analysis of Global Inter-sectoral Water Demand

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  • Strzepek, Kenneth M.
  • Juana, James S.
  • Kirsten, Johann F.

Abstract

There is growing evidence that freshwater availability is declining, while competition among sectors for the withdrawal of this scarce resource is rapidly increasing,(Rosegrant et a, 2002). Therefore, the need to promote inter-sectoral water use efficiency from the demand-side management has necessitated a study to investigate the responsiveness of different productive sectors and sub-sectors to water prices. Extracting data from the GTAP and UNIDO databases and adopting the marginal productive approach by Wang and Lall (2002),and using the two-stage-least squares method, the translog production function is estimated, from which the output and price elasticities and the marginal value of water is computed for thirteen sectors. The results indicate that generally, water use by all the production sectors is fairly price elastic, implying that water price could be used to improve water use efficiency. However, there are varying degrees of price elasticities of sectoral water demand for the different sectors. The results also suggest that, to improve industrial water use efficiency, water prices should at least reflect the marginal value of water in the different sectors. This policy should be used in complimented with other mandatory policies like fixed quantity of freshwater intake by industries, water treatment and recycling, effluent charges etc.

Suggested Citation

  • Strzepek, Kenneth M. & Juana, James S. & Kirsten, Johann F., 2006. "Marginal Productivity Analysis of Global Inter-sectoral Water Demand," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25748, International Association of Agricultural Economists.
    • Handle: RePEc:ags:iaae06:25748
    DOI: 10.22004/ag.econ.25748
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    References listed on IDEAS

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    1. Steven Renzetti (ed.), 2002. "The Economics of Industrial Water Use," Books, Edward Elgar Publishing, number 2196.
    2. Diane Dupont & Steven Renzetti, 2001. "The Role of Water in Manufacturing," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 18(4), pages 411-432, April.
    3. Frederick G. Babin & Cleve E. Willis & P. Geoffrey Allen, 1982. "Estimation of Substitution Possibilities between Water and Other Production Inputs," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 64(1), pages 148-151.
    4. Rosegrant, Mark W. & Cai, Ximing & Cline, Sarah A., 2002. "Global water outlook to 2025," Food policy reports 14, International Food Policy Research Institute (IFPRI).
    5. Wang, Hua & Lall, Somik, 1999. "Valuing water for Chinese industries : a marginal productivity assessment," Policy Research Working Paper Series 2236, The World Bank.
    6. Steven Renzetti, 1992. "Estimating the Structure of Industrial Water Demands: The Case of Canadian Manufacturing," Land Economics, University of Wisconsin Press, vol. 68(4), pages 396-404.
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