The impacts of technological change policies on water uses and virtual water trade in water-constrained settings

Abstract

Virtual water trade, which underlines the importance of inter-regional commodity transactions for enhancing water management, has often been recommended as an alternative to technological advancements in addressing water scarcity and increasing water savings in dry regions. Sectoral adjustment policies that focus on enhancing the productivity of specific sectors therefore should prioritize sectors with high growth impact potential but low virtual water demand. However, the diverse understanding of the concept and differing assessment techniques employed by various research communities complicate the debates surrounding the policy relevance of the virtual water trade. This study proposes a novel and integrated approach to evaluating virtual water content and flows endogenously, leveraging the advantages of Input-Output and Computable General Equilibrium (CGE) modeling methods. The quantification of the method is exemplified in the case of Uzbekistan (Central Asia), where water is a limited yet essential resource for sustainable economy and environmental systems. Specifically, this study examines the impacts of changes in economy-wide and sector-specific Total Factor Productivity (TFP) and water productivity on water uses, virtual water flows, and economic outcomes. The findings reveal that TFP improvements in livestock and fodder crop production and water productivity enhancements in gardening are recommendable options to constrain the net virtual water trade and enhance economic growth in Uzbekistan. The study also shows a high sensitivity of virtual water flows to technological changes, highlighting the importance of considering options for improving productivity when analyzing the potential of virtual water trade.