Indicating The Wrong Track? A Critical Appraisal Of Water Productivity As An Indicator To Inform Water Efficiency Policies

Water productivity is broadly used as an indicator to measure the success of policies aiming at efficient water management. Focusing on the agricultural sector, this paper provides the first critical analysis of the appropriateness of water productivity for this type of assessment. We apply Logarithmic Mean Divisia Index (LMDI) decomposition analysis together with descriptive statistical analysis to test our main hypothesis that is natural resources do not generate value added, and therefore changes in water productivity are related to well-known drivers of economic growth rather than to improvements in water efficiency. We use three different models with different levels of decomposition detail to identify the drivers of water productivity changes. Results show that indeed there is a weak relationship between changes in water productivity and water efficiency. In contrast, changes in water productivity are driven by changes in labor productivity and capital intensity. Thus, we discourage policy makers from using the indicator to monitor the progress on efficient water management or on decoupling between economic growth and water consumption. Rather, indicators independent from economic development such as biomass per volume of water should be used and the absolute volumes of water appropriated by society monitored.