Effects of trade liberalization policies on water resource management through the concept of water shadow price: application of the DCGE model

ABSTRACT With the growing water resource crisis and the need for effective water management globally, particularly in arid and semi-arid regions, and the added pressure from economic growth and trade liberalization, it is crucial to assess how trade liberalization policies impact water resource management. This study aims to simulate the effects of reducing import tariffs on the shadow price of water as the real economic value. For this purpose, Iran country was considered, and a dynamic computable general equilibrium model and social accounting matrix from the years 2001 and 2006 were utilized. The results showed that the agricultural sector has the largest gap between the water tariff rate and its real economic value, while the services sector has the smallest gap. Finally, trade liberalization policies will increase the real economic value of water in all economic sectors, especially the industrial sector. During the period 2021–2024, with the complete removal of import tariffs, the shadow price of water in the industrial sector will increase from 37,255 Rials to 90,469 Rials/m3. Therefore, with the expansion of global trade, it is essential to focus on pricing water according to its real value in various production sectors to manage water resources effectively.