On the economics of virtual water trade

Virtual water trade is increasingly recognized as a useful metaphor for thinking about freshwater resources in an international context. Its legitimacy in terms of economic theory has been questioned by a number of authors, however. In this article I develop new theoretical results that place the virtual water concept on a firm economic foundation, and which correct several misconceptions within the existing literature on virtual water economics.

► The virtual water metaphor helps place water issues in an international context. ► This concept has been highly controversial among economists, however. ► Some of these controversies can be resolved by a closer examination of trade theory. ► I develop new results that place virtual water on a firmer economic foundation.