Abstract
This paper examines the determinants of virtual water trade – embodied in agriculture products – and tests the relationship between property rights and the export of water-intensive agricultural products. Using two different measures of property rights protection, I show that countries with weaker property rights have an apparent comparative advantage in the export of water-intensive products. After controlling for economic size, natural resource endowments, bilateral trade determinants and potential reverse causality, the trade flow of virtual water is negatively and significantly correlated with the property rights index of the exporting country. The results are robust across different estimation methods. Holding other factors constant, a 10% increase in the property rights index of a country is associated with a 10%-17% decrease in its virtual water export, whereas a 10% increase in the natural resource protection indicator corresponds to a 1.4%-2% decrease in a country’s virtual water export.
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