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Virtual Water Trade: The Implications of Capital Scarcity

Author

Listed:
  • Mohamad Afkhami

    () (Stevens Institute of Technology)

  • Thomas Bassetti

    () (University of Padova)

  • Hamed Ghoddusi

    () (Stevens Institute of Technology)

  • Filippo Pavesi

    () (Department of Economics (University of Verona))

Abstract

The original idea behind the virtual water (VW) concept is that water-abundant countries will become producers of water-intensive goods and consequently net exporters of water, and this will alleviate the initial unequal distribution of hydric resources. We criticize this optimistic view by introducing empirical evidence that is consistent with the Heckscher-Ohlin model of international trade. We find that, though virtual water exports are increasing in the combined availability of water and arable land when comparing countries with a similar level of available water-land resources, those with higher (lower) levels of physical-human capital tend to be net importers (exporters) of water. This result relies on the intuition that high levels of capital accumulation lead water to become a relatively scarce factor in developed countries. Thus, while more developed countries shift away from agriculture, less developed countries that lack sufficient capital do not have this option and end up using water resources even if they are not abundant. Such a trade pattern could create immediate economic benefits for less developed countries, but also exerts pressure on their water resources. Therefore, prioritizing economic development in countries that have limited water availability, may be crucial to avoid excessive usage and depletion of global water resources.

Suggested Citation

  • Mohamad Afkhami & Thomas Bassetti & Hamed Ghoddusi & Filippo Pavesi, 2018. "Virtual Water Trade: The Implications of Capital Scarcity," Working Papers 03/2018, University of Verona, Department of Economics.
  • Handle: RePEc:ver:wpaper:03/2018
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    File URL: http://dse.univr.it/home/workingpapers/wp2018n3.pdf
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    References listed on IDEAS

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    Cited by:

    1. Angela Cheptea & Catherine Laroche-Dupraz, 2019. "Is irrigation driven by the economic value of internationally traded agricultural products?," Post-Print hal-02278996, HAL.
    2. Angela Cheptea & Catherine Laroche-Dupraz, 2018. "The water productivity of internationally traded agricultural products," Post-Print hal-01964295, HAL.

    More about this item

    Keywords

    Virtual Water; International Trade; Global Water Trade; Economic Devel- opment; Heckscher-Ohlin;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F18 - International Economics - - Trade - - - Trade and Environment
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q27 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Issues in International Trade
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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