Working Paper: NBER ID: w18124
Authors: Dana Medianu; John Whalley
Abstract: Recent writings on China's water situation often portray China's water problems as severe and suggest that water availability could threaten the sustainability of China's future growth. However, China's high growth of the last 20 years or more has been obtained with relatively little increase in the physical volume of water. In this paper, we use a growth accounting approach to investigate both the contribution played in the past by water availability in constraining China's growth performance, and what would be involved in the future. We use a modified version of Solow growth accounting in which water in efficiency units enters the production technology, and investment in water management assets raises efficiency of water use. Our results suggest that if investments in water assets in the future were lower than they were in the past, growth might slightly increase by about 0.1 percentage points if non-water capital and water in efficiency units are close substitutes but growth rates could decrease by as much as 0.2-3.9 percentage points if investments in water assets were small, and if the elasticities of substitution were low. On the other hand, our experiments suggest that with faster growth of investments in water assets than in the past and a low elasticity of substitution growth rates could increase. But if non-water capital and water in efficiency units are close substitutes growth rates could even decrease, as in other cases.
Keywords: Water availability; China; Economic growth; Investments in water management
JEL Codes: O44; O47; Q25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| investments in water management assets (Q25) | water use efficiency (Q25) |
| water use efficiency (Q25) | economic growth (O49) |
| investments in water management assets (Q25) | economic growth (O49) |
| lower future investments in water assets (G31) | economic growth (lower growth rates) (O49) |
| higher future investments in water assets (L95) | economic growth (higher growth rates) (O49) |
| water availability and investment rates in water assets (Q25) | economic growth (O49) |
| low elasticity of substitution between water and non-water capital (D24) | economic growth (decrease in growth rates) (O49) |