Taking away the economic “water productivity” illusion: An indicator inapt to inform meaningful water policies

Abstract

Economic water productivity, gross value added per volume of water use, is a widely used metric by international and national organizations to monitor the impacts of economic activity on water use. In fact, this metric is often used synonymously with water efficiency. Considering this, our study analyzes the adequacy of economic water productivity as a Key Performance Indicator (KPI) for monitoring if water use has become more efficient. Using 15-year panel data for the 27 European countries and carrying out a sensitivity analysis with seven Asian countries to extrapolate our results, we address our hypothesis that changes in economic water productivity are not driven by increases in physical water efficiency but mostly originate from different sources of economic growth. Our results show that the improvements in economic water productivity are not necessarily associated with improvements in water efficiency but with advances in capital intensity and, hence, in labor productivity. Accordingly, we encourage policy-makers to replace this indicator – which is based solely on an economic vision rather than ecological concerns – with indicators that report the actual pressure on the water resources (e.g., absolute water consumption or physical water-efficiency indicators) or those that at least include their driving factors in the analysis (e.g. capital intensity, labor productivity). This would allow decision makers designing policies that are more effective and genuinely ensure sustainable water management. Otherwise, economically biased political assessments likely will provide erroneous results, leading to policy recommendations causing undesired environmental impacts in the medium and long term.

Keywords

• Economic water productivity
• Water efficiency
• Circular economy indicators
• Panel data analysis