Water and Economic Growth

Edward Barbier

No 2002-28, Centre for International Economic Studies Working Papers from University of Adelaide, Centre for International Economic Studies

Abstract: Several hydrological studies forecast a global problem of water scarcity. This raises the question as to whether increasing water scarcity may impose constraints on the growth of countries. The influence of water utilization on economic growth is depicted through a growth model that includes this congestible public good as a productive input for private producers. Growth is negatively affected by the government's appropriation of output to supply water but positively influenced by the contribution of increased water use to capital productivity, leading to an inverted-U relationship between economic growth and the rate of water utilization. Crosscountry estimations confirm this relationship and suggest that for most economies current rates of freshwater utilization are not yet constraining growth. However, for a handful of countries, moderate or extreme water scarcity may affect economic growth adversely. Nevertheless, even for water-scarce countries, there appears to be little evidence that there are severe diminishing returns to allocating more output to provide water, thus resulting in falling income per capita. These results suggest caution over the claims of some hydrological-based studies of a widespread global "water crisis".

Keywords: Congestible public goods; cross-country regressions; economic growth; freshwater; water scarcity. (search for similar items in EconPapers)
JEL-codes: H41 O13 O41 Q25 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2002-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Water and Economic Growth (2004)
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