Production and consumption-based water dynamics: A longitudinal analysis for the EU27

This paper investigates the relationship between economic development and water pressures using a global Multiregional Input-Output model (MRIO) dataset that takes into account the increasingly connected global supply chains underlying the economic systems. In particular, we analyse differences in water indicator outcomes by income level among European Union countries (EU27) from 1995 to 2008, focusing specifically on production and consumption-based water metrics for the member states. We use panel fixed effects regressions to study the dynamics of adjustment of water resources alongside controlling for individual country heterogeneity. Our main results indicate that the effects differ substantially depending on the approach used for measurement, especially when we conditioned on the country economic development, indicating opposite trajectories of water consumption and per capita gross domestic product (GDP). Furthermore, the analysis of the main components associated to water indicators highlight the role of water embodied in trade flows as the transmission mechanisms of the main effects. In particular, our estimates suggest that the growth path followed by the most developed areas in the EU27 is based on the externalisation of the environmental burden over the less developed European partners, and external developing countries. On the policy front, our findings call for the implementation of integrated water resources management, technological specific policies and the corresponding environmental regulation to combine the conservation of water ecosystems and sustainable economic growth at the national, supranational and global levels