Rethinking the agricultural cost of water scarcity: national water stress, irrigated cropland and total factor productivity

Abstract Water scarcity is widely treated as a constraint on agricultural production, yet water does not enter the accounts from which agricultural productivity indices are built, so the scale of this constraint has never been directly measured. This study estimates that relationship using a long-run cross-country panel, controlling for irrigation, income, rural population and shocks shared across countries. The estimated relationship is negative but too small to distinguish from no effect, and a power analysis confirms the design is capable of detecting a meaningfully smaller effect than the one observed, so the finding sets an upper bound on the constraint rather than merely failing to find one. The result holds regardless of how heavily a country depends on irrigation, and does not vary systematically with income, aridity or observed water stress across countries. It is also robust to excluding unreliable records, to focusing on the countries with the most variation in scarcity, and to an alternative measure of agricultural output. Water scarcity may well constrain farming at the local level, but that constraint does not show up in the national data used to track and compare water stress across countries, which has implications for how such indicators are applied in policy analysis.