Water Scarcity and Food Imports: An Emperical Investigation of the 'Virtual Water' Hypothesis in the MENA Region

Abstract

Despite the long tradition established by the Heckscher–Ohlin (H–O) theorem and copious literature on the so-called Leontief Paradox, economists have not methodically linked the Middle East and North Africa (MENA) region’s well-known water-scarcity problem to its mounting food imports. This paper first reinterprets the factor endowments and comparative advantage theory in the MENA context, suggesting that the ‘virtual water’ (VW) hypothesis, focusing on water embedded in commodities, is in line with the H–O model’s tenet that ‘trade in commodities is an indirect way of trade in factors of production’. Second, findings using comparative cross-section regression analysis for 100 countries appear to vindicate the VW hypothesis that the import structures for water-deficit areas are dominated by large food/agricultural imports. The study ends with a discussion of the policy and political economy implications of the hypothesis in the light of our empirical findings.