Water Availability as a Constraint on China's Future Growth

Dana Medianu, John Whalley

NBER Working Paper No. 18124
Issued in June 2012
NBER Program(s):Environment and Energy Economics, Economic Fluctuations and Growth

Recent writings on China's water situation often portray China's water problems as severe and suggest that water availability could threaten the sustainability of China's future growth. However, China's high growth of the last 20 years or more has been obtained with relatively little increase in the physical volume of water. In this paper, we use a growth accounting approach to investigate both the contribution played in the past by water availability in constraining China's growth performance, and what would be involved in the future. We use a modified version of Solow growth accounting in which water in efficiency units enters the production technology, and investment in water management assets raises efficiency of water use. Our results suggest that if investments in water assets in the future were lower than they were in the past, growth might slightly increase by about 0.1 percentage points if non-water capital and water in efficiency units are close substitutes but growth rates could decrease by as much as 0.2-3.9 percentage points if investments in water assets were small, and if the elasticities of substitution were low. On the other hand, our experiments suggest that with faster growth of investments in water assets than in the past and a low elasticity of substitution growth rates could increase. But if non-water capital and water in efficiency units are close substitutes growth rates could even decrease, as in other cases.

download in pdf format
   (347 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w18124

Users who downloaded this paper also downloaded* these:
Heckman and Yi w18100 Human Capital, Economic Growth, and Inequality in China
Grafton, Landry, Libecap, McGlennon, and O'Brien w16203 An Integrated Assessment of Water Markets: Australia, Chile, China, South Africa and the USA
Olmstead, Hanemann, and Stavins w13573 Water Demand Under Alternative Price Structures
Allen, Qian, Zhang, and Zhao w17828 China's Financial System: Opportunities and Challenges
Wu, Deng, Huang, Morck, and Yeung w18754 Incentives and Outcomes: China's Environmental Policy
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us