Title: The Global Water Footprint of Distortionary Agricultural Policy
Abstract: Global demands on freshwater resources are rising. While policy responses have focused on the design of local water institutions, distortions in the global market for agricultural goods can lead to overproduction of water-intensive goods in regions where water is relatively scarce. In this paper, I combine satellite-derived measures of water availability with a collection of spatial and administrative datasets to provide globally-comprehensive, empirical estimates of the influence of policy distortions in agricultural markets on local water supplies. I find that interventions raising domestic agricultural output prices significantly lower local water availability, particularly for water-intensive crops and in locations most suitable for those crops. I then quantify the impact that recent liberalization of agricultural markets has had on water resources. I find that in locations with declining water resources, water supplies would be 16% lower had liberalization not taken place. These water savings are largest in locations with higher baseline levels of water stress. In contrast, liberalization slightly reduces water supplies in locations with low water stress. These findings suggest that reducing agricultural market distortions may alleviate global water stress by slowing extraction where water is most scarce.