Impacts of reallocation of resource constraints on the northeast economy of Brazil

Authors:

Geoffrey J.D. Hewings – REAL, University of Illinois

Chokri Dridi – University of Alberta, Canada

Joaquim J.M. Guilhoto – FEA – University of São Paulo, Brazil

Abstract: There is a growing recognition in the economic development literature that one of the major impediments to growth and development in the next will be access to water. In recognition of this emerging problem, the present research aims to provide a formal link between water consumption and economic growth and development. This is accomplished by linking an econometric input-output model of the Northeast Brazil economy to a water allocation model. The work can be considered as an important first step in placing water allocation the policy-making agenda; additional steps will require links to issues of climate change and water availability, potential water transfers between regions and sectors and consideration of the way alternative development strategies can be proposed that are in harmony with water availability. The results revealed that water re-allocation played only an important role directly on the agricultural sectors, the major consumers of water in the Northeast of Brazil. Re-allocation was driven by an objective to maximize value added. Over the period 1999-2012, the impact on the six agricultural sectors was to reduce their output and emp loyment by of 15% annually. The reduction in employment in the rest of the economy was a little over 1% annually. However, since the agricultural sectors continue to employ a significant percentage of the labor force, the aggregate loss of employment amo unted to 6% on average, over 1 million jobs annually. These initial results suggest the need for an active link between policy making and economic development when resource constraints are present. Some balance has to be provided between allocation and reallocation on the one hand perhaps driven by concerns with economic efficiency against anticipated losses of employment for part of the labor force with few other alternatives.

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