Box 1.4 Exploring Water Scarcity through Water Shocks

Water scarcity arises when the supply of water available in a region is unable to meet the local demand. People and places adapt over time to ensure that adequate water is provided to meet expected local consumption requirements. Local infrastructure and institutions coevolve with the concentration of economic activity and population in a region by responding to the demand-supply gap and the inflow of workers and capital into a region. This makes the issue of water scarcity difficult to quantify.

Water stress can occur for many different geoclimatic and anthropogenic reasons including weather anomalies such as those that will accompany climate change; the presence of weak institutions around irrigation and water markets; and sudden population growth such as those brought about by forced displacement. To reduce the dimensionality of the question, this report focuses on the effect of fluctuations in rainfall away from its long-term local average.

This approach of using “water shocks” induced by rainfall allows for analytic techniques that can isolate the impacts of water availability. Because they are unanticipated, these shocks act as natural experiments that allow for the comparison of economic outcomes in regions that experience them with regions that do not (or the same region but in a different year), much like a clinical trial would compare a treated population with a placebo group. By controlling for other critical characteristics that can influence the relationship, one can then isolate the impact that these shocks have on migration and development. Relying on such “water shocks” helps to provide a rigorous quantitative analysis of the impacts as well as an evidence-based discussion of policy implications for a range of related water-scarcity issues.

are both warm and dry in the same location, with the tropics and subtropics facing more record-breaking dry events (Lehmann, Mempel, and Coumou 2018; Sarhadi et al. 2018).

These effects are likely to intensify in the future with increases in both interannual and intraseasonal variability in some regions (World Bank, forthcoming). Often referred to as misery in slow motion, droughts are likely to become even more frequent and intense (Damania et al. 2017). Scientists warn that two thirds of the Earth’s land is already on track to lose water, and by the late twenty-first century the global land area and population facing extreme droughts could more than double from 3 percent during 1976–2005 to 7–8 percent. These estimates mean that nearly 700 million people, or 8 percent of the projected future population, could be affected by extreme drought compared with 200 million over recent decades (Pokhrel et al. 2021).