Statistical Analysis of Water Footprint Efficiency in World Development
Nurimanova Irina Fagimovna
Moscow, HSE
Scientific Supervisor:
Kopnova Elena Dmitrievna
Associate Professor
Availability and accessibility of water have always played a crucial role in human life and economic performance.
However, water crisis has appeared hidden behind the world financial meltdown that has left real economy without money and
has caused collapse of many companies. Simultaneously, almost all observers emphasize that the recent two decades have seen
increases in consumption of water resources and water related ecosystems thanks to population rise, economic growth, and
severity of droughts that are predicted in connection with climate change.
The issue under study is topical today. Modern world is constrained to confront problems of water scarcity and economic
climate. One way to overcome water crisis and avoid economic problems is to trade water that is virtually embedded in
commodities. It calls virtual water trade. Nevertheless, just the water footprint takes into account the total volume of freshwater
that is used to produce goods.
Therefore the paper focuses on the water footprint concepts and design of the gravity model. The aim of this report is to
examine the influence of the water footprint on economic performance in order to estimate policy efficiency. To fulfill this
purpose the specific objectives are highlighted as follows:

Determine possible explanatory factors of the water footprint of national consumption;

Construct and estimate various types of the gravity model;

Identify factors which might have a major impact on the water footprint;

Describe relation between the water footprint and the trade balance;

Examine an impact of the water footprint on economic welfare.
Although a number of books and articles exist concerning virtual water flows, this is the first paper to be devoted to the
relationship between the water footprint and the nation well-being. The gravity model has been developed and applied
previously, but it has not been considered in terms of the water footprint.
The approach taken in research of the water footprint quite similar to method applied by Fracasso. He employed gravity
model of trade, which relates product trade flows to the mass of the trading countries, their geographical distance and other
possible factors characterizing either of the trading partners.
To conduct the empirical analysis, we build cross-sectional dataset, including about 100 countries in 2005. The dependent
variable was the water footprint of national consumption per capita, shown by internal and external component. The
explanatory variables of the water footprint were selected in accordance with the objectives of the study.
A research started by performing an OLS estimation of the log-linearized version of the gravity equation:
𝑊𝐹𝑖𝑗 = 𝛼 + 𝛽𝑖 𝑀𝑖 + 𝛽𝑗 𝑀𝑗 + 𝛾𝐷𝑖𝑗 + 𝛿𝑇𝑖𝑗 + 𝜑𝑖 𝐿𝑖 + 𝜑𝑗 𝐿𝑗 + 𝜃𝑖 𝑊𝑖 + 𝜃𝑗 𝑊𝑗 + 𝜀𝑖𝑗
where 𝑊𝐹𝑖𝑗 is the water footprint; 𝑀𝑖 and 𝑀𝑗 are the matrices of variables measuring economic mass for, respectively, the
exporting country i and the importing country j; 𝐷𝑖𝑗 stays for the geographical distance between the countries; 𝑇𝑖𝑗 is a matrix of
the trade-related pair-specific variables;𝐿𝑖 and 𝐿𝑗 refer to political and economic indices in each of the countries; 𝑊𝑖 and 𝑊𝑗 are
the matrices of water-related variables for, respectively, country i and country j.
All variables were in natural logarithms with the exception of the dummies. The model was estimated several times with
different explanatory variables.
Statistical analysis revealed that the variables of the economic mass and geographical distances are significant. The
coefficients of GDP per capita differ when referring to the importing and to the exporting countries and in both cases they are
smaller than unity.
Then it was found that average agricultural tariffs in the importing country are negatively correlated with the water footprint.
The latter are relatively larger when the trading countries have a common currency and share a border.
These inferences confirm that the adoption of the gravity model of trade to explain national water footprint is appropriate.
It is observed strong positive correlation between the dependent variable and external debt stocks for exporting countries
with small value of GDP and negative correlation for importing countries with small value of GDP. Thus, international virtual
water trade improve economic welfare due to effective policy.
Overall, effective water management and international trade can cope with some economic problems and probably water
crisis. Anticipated results of the study indicate that countries suffering from blue water shortage can improve their welfare by
importing virtual water or the use of rainwater in the production of products and services.
References
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School of Oriental and African Studies, University of London, 1997.
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Anderson, J. A Theoretical Foundation for the Gravity Equation. Vol. 69.N.p.: The American Economic Review,
1979. 106-16. 1 vols.
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Fracasso, Andrea. A gravity model of virtual water trade. SIS Working Paper No 2014-4, University Of Trento, 2014
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Hoekstra, A., and Chapagain.A. Globalization of water: sharing the planet’s freshwater resources. Oxford: Blackwell
Publishing Ltd, 2008. 1-66.
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Hoekstra, A., Chapagain, A., Aldaya, M., and Mekonnen, M. The water footprint assessment manual: Setting the
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Mekonnen, M., and Hoekstra, A. Water conservation through trade: the case of Kenya. Twente Water Centre,
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