The Economic Impact of the South-North Water Transfer Project in China: A Computable General Equilibrium Analysis

32 Pages Posted: 12 Jan 2007  

Maria Berrittella

University of Palermo - CIRPIET

Katrin Rehdanz

University of Kiel; University of Hamburg - Centre for Marine and Climate Research (ZMK); Kiel Institute for the World Economy

Richard S. J. Tol

VU University Amsterdam - Institute for Environmental Studies (IVM); Carnegie Mellon University - Center for Integrated Study of the Human Dimensions of Global Change; University of Hamburg - Centre for Marine and Climate Research (ZMK); Princeton University

Date Written: December 2006

Abstract

Water resources are unevenly spread in China. Especially the basins of the Yellow, Hui and Hai rivers in the North are rather dry. To increase the supply of water in these basins, the South-to-North Water Transfer project (SNWT) was launched. Using a computable general equilibrium model this study estimates the impact of the project on the economy of China and the rest of the world. We contrast three alternative groups of scenarios. All are directly concerned with the South-to-North water transfer project to increase water supply. In the first group of scenarios additional supply implies productivity gains. We call it the "non-market" solution. The second group of scenarios is called "market solution". The market price for water adjusts such that supply and demand are equated again. In the third group of simulations the economic implications of China's capital investment in infrastructure for the water South-North water transfer project is analyzed. Finally, the investment is combined with the increased capacity of water. If an increase in water supply in China leads to an increase in productivity of their water-intensive goods and services (non-market solution) this would result in a huge positive welfare effect from increased production and export. The effect on China's welfare would still be positive, if a market for water would exist (market solution), but the world as a whole would lose. The negative effect for the rest of the world is largely explained by a deterioration of its terms-of-trade. Well functioning water markets in China are unlikely to exist.

Keywords: Computable General Equilibrium, South-North Water Transfer Project, Water Policy, Water Scarcity

JEL Classification: D58, R13, Q25, Q28

Suggested Citation

Berrittella, Maria and Rehdanz, Katrin and Tol, Richard S. J., The Economic Impact of the South-North Water Transfer Project in China: A Computable General Equilibrium Analysis (December 2006). FEEM Working Paper No. 154.06. Available at SSRN: https://ssrn.com/abstract=952938 or http://dx.doi.org/10.2139/ssrn.952938

Maria Berrittella (Contact Author)

University of Palermo - CIRPIET ( email )

Viale delle Scienza
Palermo, Buenos Aires 90128
Italy

Katrin Rehdanz

University of Kiel ( email )

Olshausenstr. 40
D-24118 Kiel, Schleswig-Holstein 24118
Germany

University of Hamburg - Centre for Marine and Climate Research (ZMK) ( email )

Troplowitzstrasse 7
D-22529 Hamburg
Germany

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, D-24100
Germany

Richard S. J. Tol

VU University Amsterdam - Institute for Environmental Studies (IVM) ( email )

De Boelelaan 1115
Amsterdam, 1081 HV
Netherlands
+31 20 444 9555 (Phone)
+31 20 444 9553 (Fax)

Carnegie Mellon University - Center for Integrated Study of the Human Dimensions of Global Change

Pittsburgh, PA 15213-3890
United States

University of Hamburg - Centre for Marine and Climate Research (ZMK)

Troplowitzstrasse 7
D-22529 Hamburg
Germany

Princeton University ( email )

22 Chambers Street
Princeton, NJ 08544-0708
United States

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