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Valuing water for Chinese industries : a marginal productivity assessment


  • Wang, Hua
  • Lall, Somik


Using plant-level data on more than 1000 Chinese industrial plants, the authors estimate a production function treating capital, labor, water, and raw material as inputs to industrial production. They then estimate the marginal productivity of water based on the estimated production function. Using the marginal productivity approach to valuing water for industrial use, they also derive a model and estimates for the price elasticity of water use by Chinese industries. Previous studies used water demand functions and total cost functions to estimate firms'willingness to pay for water use. They find that the marginal productivity of water varies among sectors in China, with an industry average of 2.5 yuan per cubic meter of water. The average price elasticity of industrial water demand is about -1.0, suggesting a great potential for the Chinese government to use pricing policies to encourage water conservation in the industrial sector. Increasing water prices would reduce water use substantially.

Suggested Citation

  • Wang, Hua & Lall, Somik, 1999. "Valuing water for Chinese industries : a marginal productivity assessment," Policy Research Working Paper Series 2236, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2236

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    References listed on IDEAS

    1. Kessides, C., 1993. "Institutional Options for Provision of Infrastructure," World Bank - Discussion Papers 212, World Bank.
    2. 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.
    3. Steven Renzetti, 1993. "Examining the Differences in Self- and Publicly Supplied Firms' Water Demands," Land Economics, University of Wisconsin Press, vol. 69(2), pages 181-188.
    4. 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.
    5. Halvorsen, Robert, 1977. "Energy Substitution in U.S. Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 59(4), pages 381-388, November.
    6. Berndt, Ernst R & Wood, David O, 1975. "Technology, Prices, and the Derived Demand for Energy," The Review of Economics and Statistics, MIT Press, vol. 57(3), pages 259-268, August.
    7. Lau, Lawrence J & Yotopoulos, Pan A, 1971. "A Test for Relative Efficiency and Application to Indian Agriculture," American Economic Review, American Economic Association, vol. 61(1), pages 94-109, March.
    8. Kessides, C., 1993. "The Contributions of Infrastructure to Economic Development, A review of Experience and Policy Implications," World Bank - Discussion Papers 213, World Bank.
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    Cited by:

    1. -, 2011. "Sistema de cuentas ambientales y económicas del agua. Borrador final," Libros y Documentos Institucionales, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 3148 edited by Cepal, March.
    2. Yerushalmi, Erez, 2012. "Measuring the administrative water allocation mechanism and agricultural amenities," The Warwick Economics Research Paper Series (TWERPS) 992, University of Warwick, Department of Economics.
    3. José Féres & Arnaud Reynaud, 2005. "Assessing the Impact of Environmental Regulation on Industrial Water Use: Evidence from Brazil," Land Economics, University of Wisconsin Press, vol. 81(3).
    4. Kumar, Surender, 2004. "Analysing industrial water demand in India: An input distance function approach," Working Papers 04/12, National Institute of Public Finance and Policy.
    5. Cyril Bogahawatte & Janaranjana Herath, "undated". "Air Quality and Cement Production: Examining the Implications of Point Source Pollution in Sri Lanka," Working papers 1, The South Asian Network for Development and Environmental Economics.
    6. 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.


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