Water in Mexican industry: an economic value study

The manufacturing industry in Mexico is concentrated in the central and northern region of the country, which is characterized by high water stress. This condition foreshadows a complicated future scenario for the industry, such as decreasing water availability in the face of dynamic economic development. The objective of this research is to estimate the economic value of water in the industry. The applied method consists of estimating the marginal productivity of water from the technical function of the production of the manufacturing industry, modelled with a translogarithmic function. The goodness of this function is that it is flexible in the values assumed by its parameters, overcoming the rigidity of the Cobb Douglas function. The information was obtained from the 2014 Industrial Economic Census, which reports data from 476,753 economic units throughout the country. The main research findings are that: i) it is estimated that a cubic metre of water used in the manufacturing industry nationwide creates an added value of 7.8 dollars, and ii) – according to the cross-elasticities estimated in the model – the industry technology is not sufficiently flexible to the possibility of substituting water for work and raw materials, and complementary with capital.