Concurrent Extremes of Drought and Exchange Rate Scissors: Re-evaluating Virtual Water Flows under Non-Linear Shocks

Ilias Chiboub and Hicham Sadok ()
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Hicham Sadok: University Mohammed V, Rabat, Morocco

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Abstract: Virtual water trade is increasingly shaped by synchronized stressors rather than isolated shocks. Focusing on Morocco and Türkiye, characterized by divergent exchange rate regimes and agricultural structures, we construct a dynamic, 30m resolution Virtual Water Export Volume using multi-sensor satellite imagery. Using a PPML gravity model with local projections and an Instrumental Variable approach, we examine the impact of non-linear 'concurrent extremes': the interaction between exchange rate volatility and drought on virtual water outflow embedded in agricultural exports. Results identify a complexity threshold where synchronized shocks supersede isolated climate or macro-financial stressors. We find that concurrent extremes constrain agricultural exports, overriding both the price-competitiveness gains of depreciation and the efficacy of irrigation technology, forcing a return to fundamental water-endowment trade patterns. Failing to account for non-linear compound shocks leads to significant forecasting errors within the water-food-energy nexus and highlights the need for adaptation strategies decoupled from macro-financial volatility, such as decentralized renewable energy sources.

Date: 2026-08-30
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-05731527

DOI: 10.2139/ssrn.7067638

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