Template-Type: ReDIF-Paper 1.0
Author-Name: Jon Frost
Author-X-Name-First: Jon
Author-X-Name-Last: Frost
Author-Name: Carlos Madeira
Author-X-Name-First: Carlos
Author-X-Name-Last: Madeira
Author-Name: Serafin Martinez-Jaramillo
Author-X-Name-First: Serafin
Author-X-Name-Last: Martinez-Jaramillo
Title: The economics of water scarcity
Abstract: In many countries around the world, water scarcity could become a macroeconomically relevant concern. As a key input into production processes (agriculture, power generation and industrial use) and a common good, water resources risk being overexploited. Regressions with panel data for 169 countries between 1990 and 2020 show that, while water use is positively correlated with output, higher water scarcity is associated with lower gross domestic product growth and investment, and higher inflation. In contrast, water use efficiency is associated with higher gross domestic product growth and lower inflation. Climate scenarios show risks of much more severe water shortages in the future, threatening its sustainable use. This could impose higher costs on individual sectors and on the economy, reducing output and pushing up prices. Water availability and use could thus become an area for economists and central banks to monitor in the context of climate change, economic forecasting and monetary policy.
Creation-Date: 2025-12
File-URL: https://www.bis.org/publ/work1314.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1314.htm
File-Format: text/html
Number: 1314
Keywords: water scarcity, efficiency, tragedy of the commons, climate change, natural resources
Classification-JEL: L95, Q25, Q50
Handle: RePEc:bis:biswps:1314