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Valuing water for Chinese industries : a marginal productivity assessment

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  • Wang, Hua
  • Lall, Somik

Abstract

Using plant-level data on more than 1000 Chinese industrial plants, the authors estimate a production function treating capital, labor, water, and raw material as inputs to industrial production. They then estimate the marginal productivity of water based on the estimated production function. Using the marginal productivity approach to valuing water for industrial use, they also derive a model and estimates for the price elasticity of water use by Chinese industries. Previous studies used water demand functions and total cost functions to estimate firms'willingness to pay for water use. They find that the marginal productivity of water varies among sectors in China, with an industry average of 2.5 yuan per cubic meter of water. The average price elasticity of industrial water demand is about -1.0, suggesting a great potential for the Chinese government to use pricing policies to encourage water conservation in the industrial sector. Increasing water prices would reduce water use substantially.

Suggested Citation

  • Wang, Hua & Lall, Somik, 1999. "Valuing water for Chinese industries : a marginal productivity assessment," Policy Research Working Paper Series 2236, The World Bank.
    • Handle: RePEc:wbk:wbrwps:2236
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    References listed on IDEAS

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    2. Yerushalmi, Erez, 2012. "Measuring the administrative water allocation mechanism and agricultural amenities," Economic Research Papers 270633, University of Warwick - Department of Economics.
    3. Kanslime, Monica K. & Karanja, Daniel K. & Alokit, Christine & Ochieng, Justus, 2018. "Derived demand for African indigenous vegetable seed: implications for farmer-seed entrepreneurship development," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 21(6), July.
    4. Fernando Arbués & Maria García-Valiñas & Inmaculada Villanúa, 2010. "Urban Water Demand for Service and Industrial Use: The Case of Zaragoza," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 24(14), pages 4033-4048, November.
    5. José Féres & Arnaud Reynaud, 2005. "Assessing the Impact of Environmental Regulation on Industrial Water Use: Evidence from Brazil," Land Economics, University of Wisconsin Press, vol. 81(3).
    6. Kumar, Surender, 2004. "Analysing industrial water demand in India: An input distance function approach," Working Papers 04/12, National Institute of Public Finance and Policy.
    7. Cyril Bogahawatte & Janaranjana Herath, "undated". "Air Quality and Cement Production: Examining the Implications of Point Source Pollution in Sri Lanka," Working papers 1, The South Asian Network for Development and Environmental Economics.
    8. Strzepek, Kenneth M. & Juana, James S. & Kirsten, Johann F., 2006. "Marginal Productivity Analysis of Global Inter-sectoral Water Demand," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25748, International Association of Agricultural Economists.
    9. V. Pande & V. Sharda & R. Kurothe & D. Sena & S. Tiwari, 2012. "An Empirical Assessment of On-Farm Water Productivity using Groundwater in a Semi-Arid Indian Watershed," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 26(2), pages 475-498, January.
    10. Vallés-Giménez, Jaime & Zárate-Marco , Anabel, 2013. "Environmental taxation and industrial water use in Spain," INVESTIGACIONES REGIONALES - Journal of REGIONAL RESEARCH, Asociación Española de Ciencia Regional, issue 25, pages 133-162.

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