Dynamics in action: Exploring economic impacts of drought through a systemic approach

Droughts are generally associated with direct and indirect impacts, but their relationships and propagation dynamics are often unknown. This study aims to fill this research gap by exploring the spill-over effects of drought impacts across systems and, in doing so, identifying leverage points within the systems to promote effective mitigation strategies. To achieve these objectives, the effects of the 2022 drought in a portion of the Po River Basin District are analysed through a qualitative application of the System Dynamics methodology called Causal Loop Diagrams, systemic representations that can effectively capture the interdependencies across complex subsystems. The findings reveal that the drought increased production costs across all the water-using sectors due to higher energy demands driven by energy-intensive activities such as irrigation, pumping and potabilization. The empirical results offer a novel insight into the identification and propagation of impacts, providing further evidence on the water-energy nexus. Therefore, policy approaches that enhance blue and green water reserves, while addressing their interconnections, are encouraged for mitigating drought impacts. This underscores the importance of adopting a proactive approach in drought management rather than reactive responses during the occurrence of extreme events. Finally, in fields characterized by high policy fragmentation, such as water policy, the study demonstrates how representing the system behaviour through causal maps can support the integration of different sectoral policies, providing decision-makers with tools to evaluate and address the complexity of droughts.