The Relationship Between Water Scarcity & Economy

May 31, 2021

This article originally appeared in WQP June 2021 issue as "Water & World Economies"

About the author:

Klaus Reichardt is founder & CEO for Waterless Co. Inc. Reichardt can be reached at [email protected].

While it may come as a surprise to those focused on water-related issues, potable water and a country’s gross domestic product (GDP) can be closely intertwined. To better comprehend this, let us first get a better understanding of GDP.

The GDP of a country measures a country’s production in a given amount of time, typically in annual increments. It includes all the goods and services produced in a country regardless of their purpose. GDP has long been viewed as one of the best barometers of a country’s economy and economic growth.

Due to COVID-19, GDP numbers have been watched far more closely than ever before. Governments, investors, financial institutions and others are extremely focused on how the pandemic has impacted countries and individual industries within those countries and around the globe.

How Are GDP & Water Scarcity Related?

Traditionally overlooked when it comes to GDP is the impact water — or lack of it — can have on a country’s economy. However, a study published in March 2020 made it clear that what the researchers called “water scarcity” can have significant, long-term negative impacts on a country’s economy and growth.

Water scarcity can be compared to resource scarcity. Resource scarcity typically involves a shortage of cultivatable land, minerals, especially what are now called “rare minerals,” and fossil fuels. However, water scarcity is a special case. Land can be cultivated for agricultural use; minerals are already exported and imported worldwide, as are fossil fuels. However, no region of the world can survive without water. With that clarified, the term water scarcity typically focuses on different types of long-term water shortages. For instance:

  • According to the United Nations (UN), water scarcity can refer to lack of sufficient rainfall in an area necessary to meet that area’s needs for a prolonged period.
  • Lack of water availability due to infrastructure or institutional failures
  • Shortages of potable water in a country or region
  • The inability of water utilities to meet growing water demand due, for instance, to growing populations.

It should also be noted that water scarcity is expected to rise during this decade. As many as four billion people are projected to experience water scarcity in varying degrees over the next 10 years. Further, because more countries worldwide may be impacted in the future by protracted water shortages and water scarcity, these negative impacts can move beyond borders, impacting the economies of large sections of the world and those living in these areas.

Impacts of Water Resources & Technology Progress

The previously mentioned study, “Evaluating the impacts of water resources technology progress on development and economic growth over the Northwest, China,” was published in PLOS One, a peer-reviewed, open access scientific journal, in March 2020 and conducted by scientists at Shaanxi Normal University.

The scientists focused on a region of China as it existed in 1996 regarding population growth, industry and economic development, and overall living conditions. The metrics collected gave them the region’s GDP, which they followed through 2017. We should note that a geographic area’s living conditions can be a key component of GDP. As living conditions improve in a region or country, GDP goes up because people tend to purchase more products and services. However, particularly pertinent to this discussion, the use of water also goes up. The area of China analyzed in the study was a semi-arid area that has experienced water shortages and water scarcity in the past. With the GDP stats in hand, the researchers then examined the impact water shortages and water scarcity had during this 21-year period.  They found that “water scarcity is increasingly becoming the biggest bottleneck for urban future development” in this and other semi-arid provinces in China.

Other Concerns

The researchers noted two additional issues that are not only impacting this area of China but also many other areas of the world, including North America. One issue was termed overload. Most areas of the world access underground water reservoirs — aquifers — in varying amounts to meet their water needs. Typically, with rainfall events, these aquifers become refilled and regenerated. However, the researchers found that in the analyzed areas, demand for this underground water is greater than the speed at which the aquifers can be refilled. This they termed overload.

The other concern noted involved water efficiency. Water efficiency typically refers to long-term water-reducing strategies, often measured by the amount of water used and delivered for particular purposes. However, it also focuses on water waste. What the researchers found is that there is considerable water waste in this part of China, with a great deal of it originating from the water-providing utilities in this area. The water waste, the researchers reported, most often happens when the water is treated and delivered, along with how it is used by manufacturers and industry in this region. Vast amounts of water, the researchers pointed out, are wasted by the industrial sector.

Conclusions & Recommendations

The following are some of the researcher’s conclusions. It should be noted that while many of these recommendations pertain specifically to this area of China, they have universal applications to areas and countries and their economies around the world. With that said, the following were among the researchers conclusions:

  • Progress in water technologies that help reduce water consumption can increase GDP growth.
  • Water scarcity will hinder future economic development in China and other parts of the world, particularly in arid and semi-arid regions.
  • Even in non-arid regions, water scarcity can constrain economic growth.
  • Development of products that reduce waste and help use water more efficiently can result in more significant economic expansion.

Fortunately, we are making significant progress introducing water-using technologies that can reduce water consumption, cut waste, and use water much more efficiently. Cities and municipalities are making significant advances. El Paso, Texas, for example, is building an advanced purification system that will treat sewage water and turn it directly into drinking water. This direct-to-distribution approach helps reduce water waste.

In New York City, six colleges have banded together to reduce water consumption, primarily by finding ways to use water more efficiently. It is estimated this will save more than 1.3 million gallons of water per month. Additionally, more and more commercial facilities are installing low-flow and no-flow restroom fixtures. Because more water is typically used in restrooms than any other location in a commercial building, this step alone will save millions of gallons of water annually.

However, this study tells us we must do more and continue to do more. Preventing water scarcity and improving water efficiency is a journey. There is no end point. Protecting this vital natural resource will also help protect and grow the economies of countries around the globe.


  • “Evaluating the impacts of water resources technology progress on development and economic growth over the Northwest, China.” Na Qiao, Lan Fang, Lan Mu. PLOS One, March 12, 2020.
About the Author

Klaus Reichardt