Water Stress and Productivity: An Empirical Analysis of Trends and Drivers

Water scarcity is a global risk that could arguably be mitigated by using water more efficiently, that is, increasing water's productivity. However, the effects of water productivity on water stress have not been empirically tested or validated across countries. Evidence from other natural resource sectors suggests that improving productivity may, in fact, lead to "rebound" effects that exacerbate resource exploitation. An econometric analysis is used to evaluate the relationship between water stress and productivity at the country level. A 1.0% increase in productivity is associated with a 0.81% decrease in water stress through time within a country, on average, and accounts for 75% of the variance of water stress. This suggests that targeting improvements in productivity have the ability to lower water stress. Analysis of trends in stress and productivity demonstrates that several developed countries are starting to exhibit decreasing trends in stress. Conversely, stress is low in developing countries, but rising. Productivity is generally increasing across all countries. Fixed effects panel regressions demonstrate that population, cultivated land, and political stability are also related to a variance in stress within a country. Differences in gross domestic product and precipitation explain variations in stress when looking across countries. The results of this analysis show that as a country develops, water stress is initially likely to increase. Increasing water productivity, which typically occurs later in a country's development pathway, is linked to decreasing stress, so water stress has the potential to be mitigated if a "productivity transition" were to take place sooner.