Water Shortages, Water Allocation and Economic Growth: The Case of China

Current projections indicate that by 2025, water scarcity will affect over one quarter of the world’s population. This suggests that the need to manage water more efficiently will become more pressing during the next few years as the demand for water increases along with the expansion of economies and their populations. This paper investigates the economic impacts of efficient intraregional and/or inter-regional water reallocation, and examines their corresponding economic gains. A Ramsey-type growth model of a small, open, competitive economy is fitted to year 2000 Chinese data andthe empirical model is used to perform policy experiments. Within region water reallocation increases per-capita Chinese GDP by about 1.5% per year over the period 2000-2060. The aggregate potential welfare gain due to this reallocation is 1002.51 billion RMB. Transferring water from southern to northern China via the South-North Water Transfer Project, on average, has a smaller impact on per-capita GDP over the period 2000-2060, with an aggregate welfare gain of 557.23 billion RMB. Combining intra-regional and inter-regional water reallocations, on average, increases per-capita GDP by 0.38% per year over the period and the aggregate welfare gain from this combination is 1148.06 billion RMB.International Development, Resource /Energy Economics and Policy,