Azman Hassan

Virtual water trade in industrial products: evidence from Malaysia

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.

Does Trade in Industrial Products have the Potential to Improve Distribution of Global Virtual Water

Virtual water refers to the amount of water used in the production of a product (a commodity, goods or services). This study examines the extent to which trade in industrial products (i.e. mining and manufacturing) between Malaysia and other countries will affect the distribution of water in water-abundant and water-scarce countries. Analyses of virtual water for 67 industrial sectors are conducted using the input–output model. This model has the ability to decompose virtual water content in the domestic demand and exports as well as virtual water import. This model also distinguishes virtual water flows (export and import) by trade destinations. Results show that resource based products are water intensive whereas electronics and electrical, machinery and equipment, and transport equipment are water non-intensive. Exports explain more than two-thirds of water consumption. Malaysia exports water non-intensive products and import water intensive products. The potential role of trade in industrial products as a policy instrument for global water distribution is limited. First, since the production of industrial products is essentially water non-intensive, thus exports of these products are not associated with large amount of water outflows. Second, trade in industrial products involves water flows among the water-abundant countries but not in water scarce countries.