Water shortages, intersectoral water allocation and economic growth: the case of China

The purpose of this paper is to investigate the economic impacts of intra- and inter-regional water reallocation on sectoral transformation and economic growth.

A multi-sector, Ramsey-type growth model is fit to Chinese data and used to perform policy experiments.

An intra-regional water reallocation increases per capita gross domestic product (GDP) by about 1.5 percent per year over the period 2000-2060. The aggregate potential welfare gain due to this reallocation is 1002.51 billion RMB. Transferring water from southern to northern China via the South-North Water Transfer Project, on average, has a negligible impact on per capita GDP over the period 2000-2060, but aggregate welfare increases by 557.23 billion RMB. Combining intra-regional and inter-regional water reallocations, on average, increases per capita GDP by 0.38 percent per year over the period and the aggregate welfare gain from this combination is 1148.06 billion RMB. Each policy scenario has implications for long-run regional production patterns: In an intra-regional reallocation scenario, Southern China produces almost 70 percent of aggregate GDP, in the inter-regional transfer it produces 58 percent of aggregate GDP, while in a combined intra/inter-regional reallocation it produces 55 percent of aggregate GDP.

This analysis can serve as a template for developing a useful planning tool that one can fit to national or regional data and use to examine a variety of policy relevant questions.