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Thursday, September 14th, 2023

Charles Regnacq (PSAE) will present “Rainwater shocks and growth: Insights from water economics”.

Abstract:

Numerous studies have consistently demonstrated the detrimental effects of rising temperatures on economic growth, but the impacts of rainwater on growth remain a contentious topic. In this paper, we enhance our understanding of rainwater impacts on growth by incorporating overlooked water properties, drawing inspiration from water economics. First, we consider the partition of rainwater into blue water (i.e. the water that ends up in lakes and rivers) and green water (i.e. those that remains in the soil) to more accurately reflect water availability in our economies. Second, we account for the presence of water stocks, in surface and groundwater reserves, on top of water flows. Based on annual sub-national panel analyses between 1990 and 2015, we find that rainwater does increase growth. However, it does so differently for green and blue water. By missing this crucial partition, we find that traditional rainwater measurements overestimate the contribution of rainwater to growth. When we account for rainwater partition, we find that additional 10 centimeters of rainwater increase growth by 0.31% on average, about half of what is estimated with traditional rainwater measurements. Our analyses further indicate that water reserves can mitigate the impacts of rainwater rarefaction on growth. In particular, we estimate that growth in regions with water reserves is two to three times less dependent on rainwater than in regions without. If this is always the case for groundwater reserves, we find that surface water reserves sometimes amplify the dependence of growth to rainwater. All these insights are robust to numerous sensitivity analyses and have major impacts for the projections of the costs of climate change worldwide. Finally, we report large heterogeneous rainwater impacts by sector (agriculture, manufacture and services), country (poor vs. rich) and surface water reserve (small vs. large, artificial vs. natural, etc.).