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Title:Understanding linkages between trade and water resources
Author(s):Dang, Qian
Director of Research:Konar, Megan
Doctoral Committee Chair(s):Konar, Megan
Doctoral Committee Member(s):Sivapalan, Murugesu; Cai, Ximing; Deryugina, Tatyana
Department / Program:Civil & Environmental Eng
Discipline:Civil Engineering
Degree Granting Institution:University of Illinois at Urbana-Champaign
Water resources
Abstract:Water is an essential input for agricultural production. Agriculture, in turn, is globalized through the trade of agricultural commodities. The relationship between international trade and water resources is an issue of great interest in the literature. Many studies focus on the relationship between trade and virtual water resources, without direct consideration of domestic, physical water resources. Now, there is a critical need to better understand the implications of trade for domestic (physical) water use. As such, the main goal of this dissertation is to understand linkages between trade and water resource both theoretically and empirically. In this dissertation, I develop a theoretical model that emphasizes four tradeoffs involving water-use decision-making that are important yet not always considered in a consistent framework. One tradeoff focuses on competition for water among different economic sectors. A second tradeoff examines the possibility that certain types of agricultural investments can offset water use. A third tradeoff explores the possibility that the rest of the world can be a source of supply or demand for a country's water-using commodities. The fourth tradeoff concerns how variability in water supplies influences farmer decision-making. I show conditions under which trade liberalization affect water use. Two policy scenarios to reduce water use are evaluated. First, I derive a target tax that reduces water use without offsetting the gains from trade liberalization, although important tradeoffs exist between economic performance and resource use. Second, I show how subsidization of water-saving technologies can allow producers to use less water without reducing agricultural production, making such subsidization an indirect means of influencing water use decision-making. Finally, I outline conditions under which riskiness of water availability affects water use. These theoretical model results generate hypotheses that can be tested empirically in future work. I also contribute to the debate over globalization and the environment by asking: What is the impact of trade on national water use and water quality? To address this question I employ econometric methods to quantify the causal relationship between trade openness, water use and nutrient use. Specifically, I use the instrumental variables methodology to evaluate the impact of trade openness on domestic water withdrawals in agriculture and industry, national nitrate, phosphate and potash use in agriculture. I find that a one percentage point increase in trade openness leads to a 5.21% decrease in agricultural water withdrawals. I find that trade openness reduces water use in agriculture primarily through the intensive margin effect, by leading farmers to produce more with less water, such as through the adoption of technology. I do not find evidence for extensive margin or crop mix impacts on agricultural water withdrawals. Significantly, these results demonstrate that trade openness leads to less water use in agriculture. However, for water quality side, I find that the impact of trade openness on nutrient use, if any, is very small. This is in line with previous research that shows that trade openness does not have a negative impact on the environment. Why would trade openness reduce nutrient applications in agriculture much smaller than agricultural water use? I show that the elasticity of substitution between nutrient use and capital is smaller than is the elasticity of substitution between water and capital. This suggests that agricultural inputs such as capital and labor are easier to substitute for water than they are for nutrient use. This helps to explain why the impact of trade on nutrient use is much smaller. This finding has broad scientific and policy relevance as I endeavor to untangle causal relationships in the complex global food system and determine its environmental impacts.
Issue Date:2018-04-18
Rights Information:Copyright 2018 Qian Dang
Date Available in IDEALS:2018-09-04
Date Deposited:2018-05

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