| Abstract: |
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. |