Water in economic growth and economic development

What is it about?

Our study examines the effect of water utilization together with the effect of water quality on economic growth across countries. We constructed a panel of 177 countries covering the period of 1960–2009. We analyse two dependent variables, gross domestic product per capita and the average of five years of growth. The analysis is conducted using a fixed effects model and fixed effects with instrumental variables. We find that although water utilization affects growth, water quality also proves to be highly significant and affects growth in both the short and long run to a greater degree than water quantity.

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Why is it important?

We used panels of 177 countries involving the ratio of water utilization. To this we added BOD as a measure of water quality and water pollution. In modelling endogenous growth, we added water quality to the growth model to correct for a weakness in previous growth models that led to their inefficiencies in testing the impact of water, in particular on short-run and long-run economic growth. Water pollution reflects the accumulation of waste and the irreversibility of the damage taking place in the environment and the ecosystem. The previous literature that modelled economic growth and the environment neglected this fact. Our analysis was concerned with whether these variables impact growth. Do water utilization and water pol- lution have impacts on economic growth? Or, for the latter, does economic growth have a capacity to absorb the accumulation of pollutants