Virtual Water Flows, Value Added and Scarcity: An Interconnected Analysis for Chilean Regional Economies

Chile exhibits significant heterogeneity in both water availability and economic structure throughout its territory. Water-intensive industries that generate high value added are concentrated mainly in areas with low water availability. In this context, estimating virtual water flows within the Chilean economy becomes essential, yet this has not been previously addressed in the literature. This study propose a methodology to estimate virtual water flows between Chilean regions using an environmentally extended multiregional input-output model, identifying the pollution, value added, and scarcity embedded in these flows. Furthermore, by incorporating regional water supply and applying the hydroeconomic equilibrium framework with methodological innovations, this study characterizes the opportunity costs (in terms of value added) of water overexploitation in regions with scarcity. The main results indicate that the central region of the country is the primary destination of virtual water flows and the pollution embedded in them (water footprint). However, when considering scarcity into the water footprint, the central-northern and northern regions gain significant importance. When considering the value added transported in these flows, the Antofagasta north region emerges as a key area, given its importance as both a producer and consumer of value added generated with water. Regarding hydroeconomic equilibrium, the findings reveal high unitary costs associated with water overexploitation in the Antofagasta and Metropolitan regions. The constructed model has also been applied to estimate the contribution of aquifers and reservoirs to regional value added. This opens an important research avenue for employing input-output models in the valuation of ecosystem services. The study provides valuable insights for the spatial targeting of policies and the design of public interventions aimed at mitigating water scarcity without imposing significant economic costs at the national level.