Trade in Virtual Water: Do Property Rights Matter?

Abstract

This paper examines the determinants of virtual water trade – embodied in agricultural products – and tests the relationship between property rights and the export of water-intensive products. Using two different measures of property rights protection, I show that countries with weaker property rights have an apparent comparative advantage in the export of water-intensive products. After controlling for economic size, natural resource endowments and bilateral trade determinants, the trade flow of virtual water is negatively and significantly correlated with the property rights index of the exporting country. The results are robust across different estimation methods.

Keywords: Virtual Water Trade, Gravity Model of Trade, Property Rights

JEL Classification: F11, F14, F18, O13, P48, Q25, Q56