Explaining virtual water trade: A spatial-temporal analysis of the comparative advantage of land, labor and water in China

Abstract

The well-known "virtual water hypothesis" states that water-deficient regions/countries could alleviate water stress through importing water-intensive products from water-abundant regions/countries. Although observed trading patterns do often not support this hypothesis, there is a lack of research to explore the reasons why trade patterns often do not support the intuitive virtual water hypothesis. To fill this important gap, we introduce comparative advantage theory in a quantitative way to track the driving forces of net virtual water export based on the spatial-temporal distribution of resource productivity and opportunity costs of land, labor and water use in agricultural and non-agricultural sectors across Chinese provinces between 1995 and 2015. The results show that regional differences in land productivity between agricultural and non-agricultural sectors are the main forces determining the pattern of virtual water flows across major regions, and other resources such as labor and water have played only a limited role. Our study shows that the current market forces reflect the scarcity of land resources, but does not reflect the water scarcity in the context of interregional trade in China. Our findings suggest that the ongoing efforts to increase land productivity of agriculture in the southern regions would contribute to reducing water scarcity in the North and Northeast China Plain.

Keywords: Comparative advantage; Opportunity cost; Productivity; Virtual water.