Water, the economy, and development: New insights on a complex challenge

In the World Bank Water Practice, we often talk about how issues like flooding and droughts threaten our mission to end poverty and boost shared prosperity. But how much do we actually know about how these floods and droughts — "water shocks" — impact farmers, firms, and communities? Perhaps adaptation in the economy has limited such impacts. Or maybe policies have led to economies being more vulnerable to such shocks.

To explore these questions, we recently gathered with leading researchers and policymakers in Oxford, UK, and concluded that while preliminary findings indicate water shocks definitely represent a major challenge to sustainable development in surprising and unexpected ways, there’s still much more we can do to strengthen the evidentiary basis for development policy.

For the past half year, a team led by Richard Damania, Global Lead Economist for the Water Practice, has been working to better understand the linkages between water shocks, the economy, and development. Their research will form the basis of a report tentatively titled "Uncharted Waters: New Insights on a Complex Challenge," that sheds new light on how water shocks, and water infrastructure, impact people, farms, forests, and firms — taking a cross-sectoral approach, going from the macro to the micro level, to contribute to the understanding of the dynamics at play across settings and issues.

During the Oxford workshop, the team presented preliminary results on four research projects using a wide range of data focusing on:

• how water shocks impact agricultural productivity and cropland expansion;
• how water supply disruptions affect firms’ bottom lines;
• how water shocks experienced in early childhood affect later-life economic and health outcomes;
• how water and sanitation infrastructure helps buffer cities from water shocks.   Participants included leading experts on flood control policy, econometric analysis, policymakers and representatives from the UK Department for International Development (DFID). 

While much of the discussion focused on refining the team’s methodological approach, perhaps the liveliest discussion centered on the policy implications of the team’s report.

Oxford water expert Dustin Garrick and Australian National University Professor Quentin Grafton, co-authors of a chapter in the report, led a discussion on how to help policymakers incorporate the results of the report into decision-making. Garrick and Grafton proposed a new framework called JADE (Just and Allocative Dynamically Efficient) to help water policymakers develop policies that balance economic development and equity, and led World Bank, DFID, and Oxford University participants in an exercise for applying JADE to several real-world situations, including Sao Paulo’s drought and Kenya’s water supply challenges.

The conclusion? That each challenge is different, but having a structured process can help policymakers identify and weigh trade-offs between different water uses and different water policy objectives.

This discussion continued at the workshop’s flagship event held at Oxford’s historic Martin School attended by over 150 participants. Richard Damania gave a presentation laying out the approach and preliminary results, followed by two panel discussions with leading water experts. Much of the discussion focused on two key issues, climate change and working in countries affected by fragility, conflict, and violence. Panelists and participants produced a number of suggestions for how the World Bank report could better influence the climate change discussion, including an invitation to engage with a major new research project being conducted by the Intergovernmental Panel on Climate Change, and recommendations on working with researchers to improve data availability and decision-making support, particularly in countries with low institutional capacity.

Despite plenty of debate and discussion during the two-day event, one common theme emerged among the researchers, practitioners, and experts assembled in Oxford: strengthened partnerships are essential to tackling the world’s water challenges . The World Bank team looks forward to sharing the results of the Unchartered Water report — and to hearing what you think!