The agricultural and economic impacts of massive water diversion

Guangbo Huang, Chong Liu, Tianyang Xi, Huayu Xu and Wei You

Journal of Development Economics, 2025, vol. 176, issue C

Abstract: We examine the agricultural and economic impacts of China’s South–North Water Diversion Project, a massive initiative that channels water from the resource-rich south to the drier north. Using a difference-in-differences approach, we find that the project increases total grain output by 8.2% and raises agricultural productivity by 4.7% in water-receiving counties. It also mitigates the adverse effects of drought shocks, leading to modest increases in local incomes. Improved water availability induces adaptive responses, including greater land allocation to water-intensive crops and a higher incidence of multi-cropping. Additionally, we find no evidence of significant losses in water-supplying areas. Our back-of-the-envelope calculation suggests an internal rate of return of 6.4%, underscoring the project’s economic viability.

Keywords: Water scarcity; South–North Water Diversion; Agricultural productivity; Adaptive responses; Regional development (search for similar items in EconPapers)
JEL-codes: O13 O18 Q15 Q25 Q28 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:176:y:2025:i:c:s0304387825000689

DOI: 10.1016/j.jdeveco.2025.103517

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