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Virtual water trade in industrial products: evidence from Malaysia

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Abstract

Virtual water embodied in international trade is equivalent to nearly one-third of global water withdrawal, confirming that trade plays a significant role in redistributing global water resources. This paper extends a virtual water analysis by measuring the extent to which virtual water embodied in traded industrial products affects the distribution of global virtual water. The distribution of global virtual water can be improved if trade in industrial products promotes virtual water outflows from water-abundant to water-scarce countries. Analyses were performed using an input–output model that can decompose water consumption into domestic demand and exports by destinations of trade. Focusing on Malaysia, the results indicate that trade in industrial products between Malaysia and its main trading partners have a limited capacity to improve the distribution of global virtual water. This limitation can be due to two reasons. Firstly, exports of Malaysian industrial products are mainly driven by less water-intensive sectors. Therefore, the amount of virtual water that outflows into other countries is also low. Secondly, trade in Malaysian industrial products largely involves water flows with other water-abundant countries. Only several water-scarce countries benefit from virtual water trade in industrial products with Malaysia, namely the Netherlands, Australia and China.

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Notes

  1. The amount of virtual water embodied in traded agricultural products was estimated by Chen and Chen (2013), which differs from another by Hoekstra and Chapagain (2007). There are two main explanations for the differences: methodology (top–down vs. bottom–up approaches) and data source (smaller scope of water resources applied by Chen and Chen 2013).

  2. Trade in industrial products includes mining and manufacturing products, while trade in agricultural products excludes forestry, logging and rubber products.

  3. Final demand for investment includes gross fixed capital formation and change in stock.

  4. For clarity, matrices are indicated by bold, upright capital letters; vectors by bold, upright lower case letters, and scalar by italicised lower case letters. Vectors are columns by definition, so that row vectors are obtained by transposition, indicated by a prime (e.g. \({\mathbf{x^{\prime}}}\)). A diagonal matrix with the elements of vector x on its main diagonal and all other entries equal to zero are indicated by a circumflex (e.g. \({\hat{\mathbf{x}}}\)). A summation vector is represented by \({\mathbf{i}}\).

  5. Value-added intensity is expressed as a ratio of value added to output and it is calculated from the input–output table. For each production sector, the value added is defined to be the difference between gross output and consumption of intermediate inputs. Therefore, value added essentially reflects the contribution of labour and capital to the production sectors.

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Authors and Affiliations

  1. Department of Economics, Faculty of Economics and Management, Universiti Putra Malaysia, 43400 UPM, Serdang, Selangor, Malaysia

    A. Hassan & M. Y. Saari

  2. Institute of Agricultural and Food Policy Studies, Universiti Putra Malaysia, 43400 UPM, Serdang, Selangor, Malaysia

    M. Y. Saari

  3. Department of Environmental Sciences, Faculty of Environmental Studies, Universiti Putra Malaysia, 43400 UPM, Serdang, Selangor, Malaysia

    T. H. Tengku Ismail

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  1. A. Hassan
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  2. M. Y. Saari
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  3. T. H. Tengku Ismail
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Correspondence to A. Hassan.

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Hassan, A., Saari, M.Y. & Tengku Ismail, T.H. Virtual water trade in industrial products: evidence from Malaysia. Environ Dev Sustain 19, 877–894 (2017). https://doi.org/10.1007/s10668-016-9770-2

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