Research on World Agricultural Economy

Water and Future Markets in Pakistan: A Dynamic CGE-Water Framework

Muhammad Zeshan

Head of Research Group: Trade, Industry & Productivity, Pakistan Institute of Development Economics (PIDE),Islamabad, 44000, Pakistan

Muhammad Shakeel

Department of Economics, Virtual University of Pakistan, Islamabad, 44000, Pakistan

Paulo Ferreira

Departamento de Ciências Económicas e das Organizações, Instituto Politécnico de Portalegre, 7300-110, Portalegre, Portugal

DOI: https://doi.org/10.36956/rwae.v5i4.1120

Received: 3 June 2024 | Revised: 9 July 2024 | Accepted: 15 July 2024 | Published Online: 20 September 2024

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Abstract

The demand for freshwater is growing rapidly in Pakistan due to rising agricultural cultivation and its intensification. In addition, the fast-growing population in the country (almost 2% per annum) and industrial growth are also adding to the rising water demand in the country. This study specifically delves into how the rapid increasing population affect the water prices in Pakistan and discusses the resulting structural changes in the economy where the water supply remains the same. The simulation results of our dynamic CGE model reveal an 11% rise in water prices by 2040, influencing agricultural costs and diminishing outputs, notably in staple crops like rice and wheat. The burgeoning populace introduces surplus labor, impacting real wages and triggering a structural transformation in production, evidenced by declining agricultural sectors but a rise in meat and industrial production. Altering dietary patterns are anticipated, favoring meat over cereals. Trade dynamics exhibit declines in staple crop exports but significant rises in fishing and service sector exports. Escalating water costs drive up imports of water-intensive crops, aggravating strain on the agricultural sector. Despite an improved trade balance, the welfare loss of population growth exceeds $2 billion, signifying a need for urgent intervention.

Keywords: Water; Welfare; Agriculture; Industry; Trade; Climate change

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