Integrated assessment of resilience to drought by coupling hydro-economic and macroeconomic models

• A hydro-economic and macroeconomic model are linked to study water policies’ indirect effects. • The coupling is achieved by recursive iterations until convergence in prices and areas. • Gross margin is improved in all analysed scenarios after the coupling • Price effect offsets production losses caused by a drought. Hydro-economic models combine biophysical and socioeconomic variables and, are tools that inform decision-making related to water resources planning. This study analyses the coupling of a hydro-economic model of the Guadalquivir River Basin (GRB) in southern Spain with a Computable General Equilibrium (CGE) macroeconomic model, applied to a drought situation and different water management policy scenarios. The two models are interconnected through changes in land use and crop prices. Results show that when the macroeconomic price effects are included in the analysis, there is an improvement in producers’ gross margin across all scenarios, with some scenarios (Drought Management Plan, Increased Efficiency, and Optimal Allocation) even registering a higher gross margin for irrigated land than the baseline scenario without drought (+4.5 %; +3.2 % and +2.6 %, respectively). However, this increase is not uniform across all crops; rather, the rise in gross margin for certain crops contributes to an overall average producers’ gain throughout the entire basin. Thus, by considering the price effect, the market equilibrium generated in the coupled model attenuates the microeconomic impact of a drought for producers. This improvement in producer surplus translates into a worsening of consumer surplus between 33 and 67 M EUR depending on the scenario. Finally, the Optimal Allocation scenario is the one in which welfare decreases the least (5 M EUR).