Water scarcity and its cascading economic effects in China's trade network: A transmission analysis

Water scarcity poses serious challenges to sustainable water use across sectors, particularly in China, where water resources are unevenly distributed and often under severe stress. Multiple studies have revealed that water scarcity can cause significant economic losses, defined as water scarcity risk (WSR). These impacts occur both locally, referred to as Local Water Scarcity Risk (LWSR), and can also be propagated to other regions and sectors through trade networks, referred to as Virtual Water Scarcity Risk (VWSR). A considerable number of water scarcity risk-related studies focus their attention on the ultimate outcome of water scarcity risk transmission from the starting point to the endpoint in the trade system, while neglecting the analysis of the intermediate transmission process of water scarcity risk. This study explores the cascading economic impacts of WSR within China's trade network, analyzing both LWSR and VWSR across provinces and sectors. Using a multi-regional input-output model combined with structural path analysis, we quantify the propagation of WSR through China's economic network, identifying key transmission pathways and nodes impacted by water scarcity. Results show that WSR declined from USD 3.5 trillion in 2017 to USD 2.8 trillion in 2020. WSR is significantly concentrated in the eastern region and water-intensive sectors such as the service sector, manufacturing, and agriculture. The study concludes with policy recommendations for reducing dependency on water-intensive local products, promoting water conservation within high-risk sectors and Inter-regional water transfer, highlighting pathways for sustainable water management.