Concurrent Extremes of Drought and Exchange Rate Scissors: Re-evaluating Virtual Water Flows under Non-Linear Shocks

Virtual water trade is increasingly shaped by synchronized stressors rather than isolated shocks. Focusing on Morocco and Türkiye, characterized by divergent exchange rate regimes and agricultural structures, we construct a dynamic, 30m resolution Virtual Water Export Volume using multi-sensor satellite imagery. Using a PPML gravity model with local projections and an Instrumental Variable approach, we examine the impact of non-linear 'concurrent extremes': the interaction between exchange rate volatility and drought on virtual water outflow embedded in agricultural exports. Results identify a complexity threshold where synchronized shocks supersede isolated climate or macro-financial stressors. We find that concurrent extremes constrain agricultural exports, overriding both the price-competitiveness gains of depreciation and the efficacy of irrigation technology, forcing a return to fundamental water-endowment trade patterns. Failing to account for non-linear compound shocks leads to significant forecasting errors within the water-food-energy nexus and highlights the need for adaptation strategies decoupled from macro-financial volatility, such as decentralized renewable energy sources.