Trade of Economically and Physically Scarce Virtual Water

Abstract The virtual water (VW) trade associated to food is composed by the quantity of water utilized for the production of the crops exchanged on the global market. In assessing a country’s water abundance or scarcity when entering the international VW trade, scholars consider only physical water availability, neglecting economic water scarcity, that indicates situations in which socio-economic obstacles impede the productive use of water. We weight the global VW trade associated to primary crops with a newly proposed composite water scarcity index (CWSI) that combines physical and economic water scarcity. Almost half of VW volumes is exported from countries with a higher CWSI than the one of the destination country. Such unfair routes occur both from low- to high-income countries and among low- and middle-income countries themselves. High-income countries have a predominant role in import of CWSI-weighted VW, while low- and middle-income countries dominate among the largest CWSI-weighted VW exporters. For many of them economic water scarcity dominates over physical scarcity. The application of the CWSI elicits also a status change from net exporter to net importer for some wealthy countries and viceversa for some low- and middle-income countries. The application of CWSI allows one to quantify to what extent VW exchanges flow along environmentally and economically unfair routes, and it can inform the design of compensation policies.