Thirsty Cities, Salty Fields: The Environmental Cost of Large-scale Water Infrastructure

Xuan Liu

No 404732, 2026 Annual Meeting, July 26 - 28, 2026, Kansas City, Missouri from Agricultural and Applied Economics Association

Abstract: Large-scale water resource reallocations combat regional scarcity but often obscure localized environmental costs. Evaluating China's South-to-North Water Diversion Project using a synthetic difference-in-differences framework, we estimate that the project increased topsoil salinity by an average of 3.16% in water-receiving counties. We show that this salinization is driven by a dual mechanism: new canal seepage artificially raises local water tables, while prohibitive marginal water prices prompt farmers to reduce irrigation, disrupting the traditional downward salt leaching process. The effects of this ecological shift are highly asymmetrical. Because post-diversion salinity remains safely within the tolerance range of winter wheat but systematically breaches the physiological yield-reduction threshold of summer maize, the environmental burden falls disproportionately on the summer growing season. Consistent with this biophysical constraint, we find that farmers rationalized production by reducing their maize acreage by 19%. Incorporating these estimates into structural agronomic models, we calculate that this asymmetric soil degradation exacts a marginal shadow cost of 920 million RMB per year in the agricultural sector.

Keywords: Resource; /Energy; Economics; and; Policy (search for similar items in EconPapers)
Pages: 37
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea26:404732

DOI: 10.22004/ag.econ.404732

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