Trade Openness and Domestic Water Use

Abstract

We contribute to the debate over globalization and the environment by asking, what is the impact of trade on national water use? To address this question, we employ econometric methods to quantify the causal relationship between trade openness and water use. Specifically, we use the instrumental variables methodology to evaluate the impact of trade openness on domestic water withdrawals in agriculture and industry. We find that trade openness does not have a significant impact on total or industrial water withdrawals. However, we show that one percentage point increase in trade openness leads to a 5.21% decrease in agricultural water withdrawals. We find that trade openness reduces water use in agriculture primarily through the intensive margin effect, by leading farmers to produce more with less water, such as through the adoption of technology. We do not find evidence for extensive margin or crop mix impacts on agricultural water withdrawals. Significantly, these results demonstrate that trade openness leads to less water use in agriculture. This finding has broad scientific and policy relevance as we endeavor to untangle causal relationships in the complex global food system and develop policies to achieve water and food security.

Complementary Vantage Points: Integrating Hydrology and Economics for Sociohydrologic Knowledge Generation

“…Common endogeneity problems (dashed arrows) include (i) omitted variables (e.g., wealth affects both water use and trade openness) and (ii) reverse causality (e.g., water use can increase trade openness by empowering agricultural lobbies). Dang and Konar () address these concerns by using geographic determinants of trade (e.g., distance) as instrumental variables (iii). (b) Difference‐in‐differences is used to estimate the effect of the 2013 refugee crisis on irrigated land area in Southern Syria using Northern Jordan as a control group (Müller, Yoon, et al, ); error bars indicate standard deviations across years.…”

“…Dang and Konar () used this approach to address endogeneity in the example discussed in section , when estimating the effect of a country's openness to international trade on domestic water withdrawals for agriculture. The Dang and Konar () study is an example of a quasi‐experimental approach that compares countries across levels of trade openness (i.e., “comparison groups” are levels of trade openness).…”

“…For details Common endogeneity problems (dashed arrows) include (i) omitted variables (e.g., wealth affects both water use and trade openness) and (ii) reverse causality (e.g., water use can increase trade openness by empowering agricultural lobbies). Dang and Konar (2018) address these concerns by using geographic determinants of trade (e.g., distance) as instrumental variables (iii).…”

“…An IV is a variable that is strongly correlated with the independent variable of interest (the driver) but does not affect the dependent variable (the outcome), other than through its effect on the driver (Figure 1a(iii)). Dang and Konar (2018) used this approach to address endogeneity in the example discussed in section 2.1, when estimating the effect of a country's openness to international trade on domestic water withdrawals for agriculture. The Dang and Konar (2018) study is an example of a quasi-experimental approach that compares countries across levels of trade openness (i.e., "comparison groups" are levels of trade openness).…”

Grain and Virtual Water Storage Capacity in the United States

“…For an overview of the debate surrounding VWT please see Antonelli and Sartori (2014). However, recent work, using advanced econometric methods, has demonstrated that trade does, on average, lead nations to use less water in agriculture (Dang & Konar, 2018). It is important to note that water is only one of a suite of factors of production in agriculture (Kumar & Singh, 2005).…”