Using water usage intensity as comparative advantage..

Looks like a super paper by Peter Debaere of University of Virginia. As the paper  is paid, thankfully the findings are explained in voxeu.

Water is deficient in some regions and surplus in others. Hence on a global net basis, there may not be a water crisis. However, in some deficient regions there may be a crisis. He suggests using market forces to rectify this mismatch:

 

The major concerns about water availability stem especially from the very uneven global distribution of water. While many countries clearly have more than enough water to satisfy their populations’ increasing needs, some countries do not. Because water scarcity is tied to particular regions, it is easy to understand why analyses of and policy solutions for water scarcity have traditionally had a local focus. Only recently have scientist realised that a global framework is needed (Hoekstra et al 2008 and Vörösmarty et al 2000).

Most of the things we produce require water, and often much more water than people are aware of. One single apple, for example, has a water footprint of 700 litres, and it takes 24,000 litres before you can buy one kilogram of chocolate in the store. My study (Debaere 2012) explicitly studies water as a source of comparative advantage and investigates whether countries use water efficiently on a global scale. In other words, I investigate whether countries with relatively scarce water resources shift their production and exports away from more water-intensive goods (i.e. goods whose production requires, compared to other factors, more water) to less water-intensive goods. In a world in which international trade is possible, those water-scarce countries can then buy water-intensive goods from countries that do not face any significant water resource constraints.

The initial findings show this comparative advantage business is already happening:

Figure 1 below shows that such an international specialisation of production and trade is, at least to some extent, taking place. It shows the share of world exports for the 65 most water-abundant countries of the world in ten groups of goods that are classified by increasing water intensity. As one can see, the export share of the water-abundant countries tends to increase with the water intensity of the export goods.

Econometric evidence confirms that water is a significant factor in determining the international pattern of exports, while controlling for other production factors such as capital, skilled labour and land. At the same time, my estimates indicate that the traditional production factors, i.e. capital and skilled labour, play a much more important role in determining the pattern of international trade (and production) than does water. From a global perspective and in light of the current debate about climate change, this evidence suggests that changes in the pattern of trade due to changing precipitation and water availability should be contained.

So, it seems some adjustments are already happening. There are some caveats where some countries which are heavy agri exporters can face disruptions due to water shortages…

Overall, open markets can help alleviate the water crisis:

Global economic analyses of water scarcity are few, in spite of the imminent water crises, the extensive international trade literature, and the wealth of data from water studies outside economics. While more research is needed, especially on the specific impact of trade policy on water use, my study suggests that open markets that make the international specialisation of production possible may offer a way to fight water scarcity.

I am not really convinced. The focus is on just one kind of usage of water – in goods. Water is used for many other basic livelihood purposes and the real challenge is there. Infact, people can figure out goods which use low water resources without even opting for international trade. The real challenge is to have enough water for basic living..

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