There is a growing recognition in the economic development literature that one of the major impediments to
growth and development in the next will be access to water. In recognition of this emerging problem, the
present research aims to provide a formal link between water consumption and economic growth and
development. This is accomplished by linking an econometric input-output model of the Northeast Brazil
economy to a water allocation model. The work can be considered as an important first step in placing water
allocation the policy-making agenda; additional steps will require links to issues of climate change and water
availability, potential water transfers between regions and sectors and consideration of the way alternative
development strategies can be proposed that are in harmony with water availability.
The results revealed that water re-allocation played only an important role directly on the agricultural sectors,
the major consumers of water in the Northeast of Brazil. Re-allocation was driven by an objective to maximize
value added. Over the period 1999-2012, the impact on the six agricultural sectors was to reduce their output
and emp loyment by of 15% annually. The reduction in employment in the rest of the economy was a little over
1% annually. However, since the agricultural sectors continue to employ a significant percentage of the labor
force, the aggregate loss of employment amo unted to 6% on average, over 1 million jobs annually.
These initial results suggest the need for an active link between policy making and economic development when
resource constraints are present. Some balance has to be provided between allocation and reallocation on the
one hand perhaps driven by concerns with economic efficiency against anticipated losses of employment for
part of the labor force with few other alternatives
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