Simulated water productivity in Gansu Province, China

Economic value of water and economic analysis of water use management in Gansu Province of China have attracted widespread public attention. With the socioeconomic development, research on water resources has become more important than before. In this study, we define “water productivity” as the changes of economic production outputs of sectoral activities in every cubic meter of water input, which is also the technical coefficient of water resource use in each sector. According to Computable General Equilibrium (CGE) framework, based on the Input-Output Table 2007 and water resources bulletin of Gansu Province, we introduced the water into the ORANI-G (A Generic Single-Country Computable General Equilibrium model) model through the nested constant elasticity of substitution (CES) production function to analyze the changes of economic productions caused by water supply changes. We then examined water productivity in different sectors. Empirical results showed that current water productivity is underestimated. Agricultural water productivity is lower than that of the secondary and tertiary industries, even although agricultural water use is the largest part of water use in Gansu Province, and therefore improving agricultural water productivity can greatly mitigate the water shortage. Simulation results indicate that industrial transformation and development of water-saving industries will also mitigate water scarcity. Moreover, sensitivity analysis shows that the empirical results are robust under different scenarios. The results also show that higher constant elasticity of substitution rate (CES) between water and other production factors will contribute to sustainable development.