The Role of Groundwater Depletion in Global Agricultural Trade: A Theoretical and Empirical Approach to Resource Management and Market Dynamics

Abstract

This study provides a theoretical and empirical understanding to the vulnerabilities of agricultural trade networks to rapid groundwater depletion in the last two decades. By extending current models of non-renewable resources to the semi-renewable space, an understanding to the effects of changes in groundwater level to agricultural yields and domestic prices in agriculture can be found. A conceptual framework in a farmers’ decision to plant water-intensive crops for trade versus subsistence farming was used to inform the creation of a Cobb-Douglas production function for agricultural production. This was refined into a panel regression model to understand the effects of changes in groundwater levels on agricultural yields and prices for trade. Here, I find that changes in groundwater level have an analogous relationship with yields and an inverse relationship with prices, which is exacerbated for high water-intensity crops as compared to low water-intensity crops. An optimal resource allocation model was constructed as an addition to determine the optimal amount of groundwater for extraction and derive a price for groundwater as scarcity increases. These results showed that extraction must drastically decrease in order to maintain the socially beneficial aspects of aquifers. The implications of these findings are of particular relevance to governing bodies, farmers, water-regulating agencies, and international organizations as it highlights the growing danger of the current status quo of groundwater depletion on agricultural trade networks.