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Water Resources Management

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13-03-2018

Trade in Virtual Water: Do Property Rights Matter?

Author: Ankai Xu

Published in: Water Resources Management | Issue 8/2018

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Abstract

This paper examines the determinants of virtual water trade – embodied in agricultural products – and tests the relationship between property rights and the export of water-intensive products. Using two different measures of property rights protection, I show that countries with weaker property rights have an apparent comparative advantage in the export of water-intensive products. After controlling for economic size, natural resource endowments and bilateral trade determinants, the trade flow of virtual water is negatively and significantly correlated with the property rights index of the exporting country. The results are robust across different estimation methods.

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More recently, Copeland and Taylor (2009) further explain the relationship between trade and property rights in a dynamic model whereby the degree of property rights enforcement is endogenously determined by three forces: the regulator’s enforcement power, the extent of harvesting capacity, and the ability of the resource to generate competitive returns without being extinguished.

For example, Acemoglu and Johnson (2005) defines “property rights institutions” as institutions constraining government and elite expropriation, which are “intimately linked to the distribution of political power in society because they regulate the relationship between ordinary private citizens and the politicians or elites with access to political power”.

The correlation between the property rights index and per capita GDP of a country is 0.747; the correlation between the property rights index and the natural log of per capita GDP is 0.738.

The correlation between NRPI and per capita GDP of a country is 0.145; the correlation between NRPI and the natural log of per capita GDP is 0.162.

The database is developed by French research institute Centre d’Études Prospectives et d’Informations Internationales (CEPII), based on bilateral trade data provided by the United Nations Statistical Division. See Gaulier and Zignago (2010) for more details.

Values of foreign contents in the exports of agricultural products are relatively low. The OECD-WTO Trade in Value Added (TiVA) database indicates that share of foreign content of gross exports in 2005 for “Agriculture, hunting, forestry and fishing” industry is 13.79%, and for “Food products, beverages and tobacco” industry is 20.15%.

Although data are available for all years covered in the study, in some years the data might be missing for certain countries. Where necessary, I replace the missing data with observations of the country from the previous or subsequent year.

Clustering at the country-pair level allows the variance to differ across importer-exporter pair, permits an unstructured covariance within the clusters to control for correlation over time.

The summary statistics indicate that the dependent variable “bilateral virtual water trade” has more than 10% zero values.

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Title: Trade in Virtual Water: Do Property Rights Matter?
Author: Ankai Xu
Publication date: 13-03-2018
Publisher: Springer Netherlands
Published in: Water Resources Management / Issue 8/2018
Print ISSN: 0920-4741
Electronic ISSN: 1573-1650
DOI: https://doi.org/10.1007/s11269-018-1941-5

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