Water scarcity and food imports: an empirical investigation of the 'virtual water' hypothesis in the MENA region

Hassan Hakimian
2003 Review of Middle East Economics and Finance  
The suggestion that trade between nations may be explained by international differences in resource endowments is an old idea in international trade theory. Despite the long tradition established by Heckscher-Ohlin theorem and a copious literature on the so-called Leontief Paradox, economists have not, however, methodically linked MENA region's well-known water scarcity problem to its mounting food imports. Impetus has instead come from environmental and water resource specialists who have
more » ... d the term 'virtual water' to encapsulate the relationship between factor scarcity and agricultural trade in the region. This paper first reinterprets factor endowments and comparative advantage theory in the MENA context suggesting that the 'virtual water' hypothesis is rooted in the H-O tradition of economic thought. Virtual water is water embedded in commodities. The essential premise of this hypothesis is therefore in line with the H-O model's tenet that 'trade in commodities is an indirect way of trade in factors of production.' Second, we proceed to a formal testing of the 'VW' hypothesis. Using comparative cross-section regression analysis for 100 countries, we test the importance of water in explaining the structure of imports for different regions of the world in general and for the MENA region in particular. Our findings appear to vindicate the VW hypothesis that water deficit areas' import structure is dominated by large food/agricultural imports. Whilst quite robust, the results are, nevertheless, sensitive to the definition of water used. This calls, inter alia, for better quality for water data measurements globally in order to improve the value and reliability of empirical studies. The study ends with a discussion of the policy and political economy implications of the hypothesis in the light of our empirical findings.
doi:10.1080/1475368032000061653 fatcat:zgjd6pkjyfdhpnqkzgroxjebau