Water Scarcity and Virtual Water Trade in the Mediterranean

Virtual water trade refers to the implicit content of water in the production of goods and services. When trade is undertaken, there is an implicit exchange of water. Furthermore, when water gets scarce, water intensive goods become more expensive to produce and the economy compensates through higher water imports.This paper is about applying the concept of virtual water to the problem of future water scarcity in the Mediterranean area, also induced by the climate change. The aim is assessing to what extent water trade is a viable adaptation option to the problem of water scarcity. To this end, a computable general equilibrium model is extended with satellite data on sectoral water consumption, and used to assess future scenarios of water availability.It is found that virtual trade may curb the negative effect of water scarcity, yet the consequences in terms of income and welfare remain quite significant, especially for some regions.Computable General Equilibrium Models, Water, Virtual Water, Water Scarcity, Climate Change

An integrated assessment model for food security under climate change for South Asia

The present study develops an integrated assessment model (IAM) for food security under climate change for South Asia. For IAM, initially, an econometric model is estimated that identifies the impact of climate change on crop yields, using the historical relationships between temperature, precipitation, and the production of cereals. Subsequently, future projections have been collected for temperature and precipitation from climate models of the Coupled Model Inter-comparison Project Phase 5 (CMIP5), and the previous econometric model is applied to obtain the implied future cereal yields changes. Then, the yield variations are fed into a multiregional Global Trade Analysis Project (GTAP) model, calibrated to the GTAP 9 database, taking the form of decreases in factor-augmenting productivity of the grains sector. Further, the present study evaluates the effects of climate change on an individual South Asian country. The results indicate that change in climate decreases food production, increases food prices, decreases food consumption, and thus affects the welfare. Trade and fiscal policy responses are investigated to combat the problem of food security. It is revealed that these two policies fail to compensate climate change damage in all the selected South Asian countries

Do Farmers Adapt to Climate Change? A Macro Perspective

Greenhouse gas emissions cause climate change, and agriculture is the most vulnerable sector. Farmers do have some capability to adapt to changing weather and climate, but this capability is contingent on many factors, including geographical and socioeconomic conditions. Assessing the actual adaptation potential in the agricultural sector is therefore an empirical issue, to which this paper contributes by presenting a study examining the impacts of climate change on cereal yields in 55 developing and developed countries, using data from 1991 to 2015. The results indicate that cereal yields are affected in all regions by changes in temperature and precipitation, with significant differences in certain macro-regions in the world. In Southern Asia and Central Africa, farmers fail to adapt to climate change. The findings suggest that the world should focus more on enhancing adaptive capacity to moderate potential damage and on coping with the consequences of climate change

Why can sectoral shocks lead to sizable macroeconomic fluctuations? Assessing alternative theories by means of stochastic simulation with a general equilibrium model

Relatively small sectoral productivity shocks could lead to sizable macroeconomic variability. Whereas most contributions in the literature analyze the issue of aggregate sensitivity using simple general equilibrium models, a novel approach is proposed in this paper, based on stochastic simulations with a global CGE model. We estimate the statistical distri- bution of the real GDP in 109 countries, assuming that the productivities of the industrial value added composites are identically and independently distributed random variables. We subsequently undertake a series of re- gressions in which the standard error of the GDP is expressed as a function of variables measuring the “granularity” of the economy, the distribution of input-output trade flows, and the degree of foreign trade openness. We find that the variability of the GDP, induced by sectoral shocks, is basically determined by the degree of industrial concentration as counted by the Herfindhal index of industrial value added. The degree of centrality in inter-industrial connectivity, measured by the standard deviation of second order degrees, is mildly significant, but it is also correlated with the industrial concentration index. After controlling for the correlation effect, we find that connectivity turns out to be statistically significant, although less so than granularity

Input-output linkages and the propagation of domestic productivity shocks: Assessing alternative theories with stochastic simulation

Relatively small sectoral productivity shocks could lead to sizable macroeconomic variability. Whereas most contributions in the literature analyze the issue of aggregate sensitivity using simple general equilibrium models, a novel approach is proposed in this paper, based on stochastic simulations with a global CGE model. We estimate the statistical distribution of the real GDP in 109 countries, assuming that the productivities of the industrial value added composites are identically and independently distributed random variables. We subsequently undertake a series of regressions in which the standard error of the GDP is expressed as a function of variables measuring the “granularity” of the economy, the distribution of input-output trade flows, and the degree of foreign trade openness. We find that the variability of the GDP, induced by sectoral shocks, is basically determined by the degree of industrial concentration as counted by the Herfindhal index of industrial value added. The degree of centrality in inter-industrial connectivity, measured by the standard deviation of second order degrees, is mildly significant, but it is also correlated with the industrial concentration index. After controlling for the correlation effect, we find that connectivity turns out to be statistically significant, although less so than granularity

Estimation of Climate Change Damage Functions for 140 Regions in the GTAP9 Database

Climate change damage (or, more correctly, impact) functions relate variations in temperature (or other climate variables) to economic impacts in various dimensions, and are at the basis of quantitative modeling exercises for the assessment of climate change policies. This document pro- vides a summary of results from a series of meta-analyses aimed at estimating parameters for six specific damage functions, referring to: sea level rise, agricultural productivity, heat effects on labor productivity, human health, tourism flows, and households’ energy demand. All parameters of the damage functions are estimated for each of the 140 countries and regions in the Global Trade Analysis Project 9 data set. To illustrate the salient characteristics of the estimates, the change in real gross domestic product is approximated for the different effects, in all regions, corresponding to an increase in average temperature of +3°C. After considering the overall impact, the paper highlights which factor is the most significant one in each country, and elaborates on the distributional consequences of climate change

Unfolding the potential of the Virtual Water concept. What is still under debate?

The concept of virtual water refers to the volume of water used in the production of a commodity or a service. The concept was identified by the geographer Tony Allan in the early 1990s, to draw attention on the global economic processes that ameliorate local water deficits in the MENA region and elsewhere. Since its inception, the virtual water concept has inspired a flourishing literature on how to address global water resource scarcity vis-à-vis commodity production and consumption in a variety of disciplines, but also has been the object of a number of critiques. Against this backdrop, the aim of the study is, first, to conduct a thorough review of the conceptual definition of the concept, its critics and applications. Secondly, to analyse its theoretical underpinnings and, in particular, its relationship with economic theory. The study argues that, despite not being a policy tool itself, the virtual water concept can reveal aspects related to production, consumption and trade in goods which monetary indicators do not capture. Its potential as an indicator for informing decision-making in water management and policy, as well as commodity trade policy, still has to be fully unfolded

Virtual water trade and country vulnerability: A network perspective

In this paper, we analyze the link between virtual water trade, that is, the flow of water embodied in the international trade of agricultural goods, and vulnerability to external shocks from the vantage point of network analysis. While a large body of work has shown that virtual water trade can enhance water saving on a global scale, being especially beneficial to arid countries, there are increasing concerns that more openness makes countries more dependent on foreign food suppliers and especially more susceptible to external shocks. Our evidence reveals that the increased globalization witnessed in the last 30 years is not associated with the increased frequency of adverse shocks (in either precipitation or food production). Furthermore, building on recent advances in network analysis that connect the stability of a complex system to the interaction between the distribution of shocks and the network topology, we find that the world is more interconnected, but not necessarily less stable