Measuring Gains and Losses in Virtual Water Trade from Environmental and Economic Perspectives

Aixi Han, Ao Liu, Zhenshan Guo, Yi Liang and Li Chai ()
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Aixi Han: China Agricultural University
Ao Liu: China Agricultural University
Zhenshan Guo: University of Leeds
Yi Liang: Rutgers University
Li Chai: China Agricultural University

Environmental & Resource Economics, 2023, vol. 85, issue 1, No 7, 195-209

Abstract: Abstract Virtual water trade can generate an aggregate value gain or loss when there is a regionally disparity in the value of water resources. This paper proposes a novel integrated model to evaluate the impact of virtual water trade on the gain and loss in both environmental and economic dimensions. Environmentally, when virtual water flows from regions rich in water to regions short of water, the scarcity of water resources at the aggregate level is alleviated and positive gains are obtained. Economically, as virtual water is transferred from economically less developed regions to those that are economically developed, the marginal economic value of water resources is enhanced, resulting in a positive gain. China is characterized by significant disparities in the degree of water scarcity and the level of economic development in different areas of the country. This study therefore focuses on China as a case of how interregional virtual water trade leads to a loss or gain in aggregate value. We employ a Multi-regional Input–Output model to analyze the virtual water flows within China and adopt the Data Envelopment Analysis to evaluate the water shadow price. Results show that the virtual water flow in China in 2015 was mostly from water-scarce to water-rich regions, resulting in a loss of 8 billion m3 of scarce water; however, at the same time, economically developed areas received large amounts of virtual water from less developed areas, thereby generating a net economic gain of 8.5 trillion CNY. In particular, the virtual water trade from Heilongjiang to Shandong yielded the largest of environmental gains, saving 1.65 billion m3 of scarce water, and the virtual water trade from Xinjiang to Guangdong produced the largest of economic gains, hitting 479 billion CNY. This paper aims to serve as an inspiration for regional, national and even global virtual water trade practices. Graphical Abstract

Keywords: Virtual water trade; Scarce water; Shadow price; MRIO; DEA (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10640-023-00763-9

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