Modelling Water Resources and Economic Growth: The Empirical Challenge

Theoretical and empirical studies have investigated the interaction between economic growth and natural resources, including water. As water resources can be seen as a primary production factor in the economy, their scarcity affects the economic growth potential, and this is especially relevant in some countries and regions, characterized by current of future water scarcity. Most of the available studies focus at the level of water basin, an approach which is not very informative about the broader, system-wide consequences of water scarcity. Indeed, efforts in this direction are quite limited, because of the difficulty of finding reliable data, as well as of appraisal methodologies for a resource which is not traded in formal markets, and whose allocation is severely distorted by externalities and institutional factors. This Chapter documents the available studies on this field, the empirical challenges faced, but also some robust qualitative insights obtained so far.