Determinants of Virtual Water Flows in the Mediterranean

IEFE - The Center for Research on Energy and Environmental Economics and Policy Working Paper n. 75

20 Pages Posted: 12 Dec 2014

See all articles by Andrea Fracasso

Andrea Fracasso

University of Trento

Martina Sartori

Bocconi University - IEFE Centre for Research on Energy and Environmental Economics and Policy

Stefano Schiavo

University of Trento - Department of Economics and Management; OFCE

Date Written: December 11, 2014

Abstract

The aim of the paper is to investigate the main determinants of the bilateral virtual water ‘flows’ associated with international trade in agricultural goods across the Mediterranean basin. Virtual water refers to the volume of water used in the production of a commodity or a service. The exchange of water as embedded in traded goods brings about the so-called virtual water ‘trade’. We consider the bilateral gross ‘flows’ of virtual water in the area and study what export-specific and import-specific factors are significantly associated with virtual water ‘flows’. We follow a sequential approach. Through a gravity model of trade, we obtain a “refined” version of the variable we aim to explain, one that is free of the amount of flows due to pair-specific factors affecting bilateral trade flows and that fully reflects the impact of country-specific determinants of virtual water ‘trade’. A number of country-specific potential explanatory variables is presented and tested. To identify the variables that help to explain the bilateral ‘flows’ of virtual water, we adopt a model selection procedure based on model averaging.

Our findings confirm one of the main controversial results in the literature: larger water endowments do not necessarily lead to a larger ‘export’ of virtual water, as one could expect. We also find some evidence that higher water irrigation prices reduce (increase) virtual water ‘exports’ (‘imports’).

Keywords: virtual water ‘trade’, Mediterranean countries, Bayesian model averaging, weighted average least square

JEL Classification: F18, Q25

Suggested Citation

Fracasso, Andrea and Sartori, Martina and Schiavo, Stefano, Determinants of Virtual Water Flows in the Mediterranean (December 11, 2014). IEFE - The Center for Research on Energy and Environmental Economics and Policy Working Paper n. 75, Available at SSRN: https://ssrn.com/abstract=2536794 or http://dx.doi.org/10.2139/ssrn.2536794

Andrea Fracasso (Contact Author)

University of Trento ( email )

via Inama 5
I-38122 Trento, Trento 38122
Italy

HOME PAGE: http://andrea.fracasso.googlepages.com/andreafracassopersonalhomepage

Martina Sartori

Bocconi University - IEFE Centre for Research on Energy and Environmental Economics and Policy ( email )

viale Filippetti, 9
Milan, 20122
Italy

Stefano Schiavo

University of Trento - Department of Economics and Management ( email )

via Inama, 5
Trento, 38100
Italy

OFCE

Valbonne, 06560
France

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