Identifying the impact of water constraints on agricultural productivity in hillside contexts

Abstract Using a unique panel dataset based on two census rounds, we estimate the impact of irrigation gaps and drought on yields of paddy, maize, and other crops in Bhutan, an understudied country. We utilize a recently‐developed spatial first differences (SFD) approach to identify the impacts of water‐related constraints and compare these results from a panel fixed effects (FE) approach. We find that irrigation gaps reduce paddy yields and droughts reduce maize yields. Estimates from the SFD model are found to be consistent compared to those from the panel FE model. Water‐related constraints also reduce yields of vegetable crops, and other constraints such as labor shortages, wild animals, insects, and diseases reduce yields of cereal crops.