Water as a Conduit for Development

The calculations are performed using the empirical estimation described in box 2.5 in combination with summary measures of forest loss and irrigation costs. Globally, on average, for a 10 percentage point decrease in the share of forest cover,14 around 195 million hectares of land would need to be placed under irrigation to compensate for the drought-buffering effects of lost forest. At a unit cost of irrigation expansion ranging from US$4,000 to US$16,000 per hectare (Inocencio et al. 2007), this would mean an investment cost of about US$0.8 trillion to US$3 trillion.

These estimates show that the drought-buffering effects of forests are not trivial and highlight the underappreciated benefits of investing in forests and nature. Healthy ecosystems underpin economies and society on many levels. They provide essential livelihoods and environmental services, regulate key aspects of the global carbon cycle and climate, sustain cultural traditions, and offer health and recreation benefits. They also provide critical habitat for biodiversity. Although a comprehensive accounting of all of the benefits remains elusive, the costs of nature-based solutions are often found to be negligible and without large financial outlays or environmental damage, compared with other physical capital. Elsewhere, studies have shown that preserving floodplains from development can reduce flood damage by up to 78 percent, and using environmentally sensitive agricultural and land management practices can increase water flow by up to 11 percent (Watson et al. 2016; Abell et al. 2017). Importantly, natural capital investments can be complementary to infrastructure. Investing in a suite of solutions to buffer incomes from erratic rains—for example, protecting catchment areas and forests, together with a canal or dam for irrigation—can produce greater benefits than investing in any single one of these solutions (Guannel et al. 2016).

Much of the study of development economics is concerned with why some places are poor and some are rich, which is closely related to why some places became rich and some remained poor. Underpinning this foundational question in development is the unfolding process of migration. It is the key channel through which standards of living can even out across regions such that people can take advantage of new opportunities and leave areas hit by economic adversity.

This chapter uses historical episodes of water shocks and their relation to migration to better understand water’s role in shaping the issues related to this central theme within economics. It demonstrates that migration serves as a significant margin of adjustment in response to water shocks and persistent droughts. But it also highlights that this adjustment mechanism may not be available to everyone. Even as a closer study of economic incentives might predict movement in response to differences in economic opportunities

caused by droughts, the real world is far from being “irrepressibly dynamic” (Banerjee and Duflo 2019). It is sticky and replete with friction.

The analysis suggests that for those with the ability to migrate, migration may have been instrumental in avoiding some of the grim outcomes of droughts and in building insurance against water risks. However, for the most vulnerable members of society, this option may not be available, suggesting that migration opportunities are only open to those who have sufficient social and economic capital. Supporting this argument, the study also confirms that for the poor, migration options are much more available in response to wet rainfall episodes that allow accumulation of capital and a greater adaptive capacity to migrate.

This raises an important policy issue. Those who experience reductions in employment opportunities or income because of drought, but who do not have the wherewithal to move, face a double dilemma. Not only are they the most vulnerable to the impact of water shocks on their livelihoods but also they are the least likely to secure their livelihoods through migration. These trapped populations are often hidden from media headlines, yet they represent a policy concern just as serious as migration that could have much wider consequences. The compounding of vulnerabilities could increase demands for humanitarian assistance, add to local stress, or even ignite conflict.

On the other hand, for those with the means to migrate, the fact that migration in response to dry shocks is substantial is also a reflection that other adaptation strategies, protective investments, and coping mechanisms are not readily available to all as a means of managing with less water and mitigating the impact of water scarcity on income. This chapter sheds light on these issues and shows that migration responses to water shocks can be attenuated in the presence of buffering investments in gray and green infrastructure. The income-smoothing benefits provided by irrigation infrastructure and forest access are able to diminish the risk of water shocks and in turn lessen the impact of water shocks on migration, even if they cannot eliminate the effect completely.15

But this is not true everywhere and at every time. If these buffering investments are not managed properly it may be that in the long run their benefits will also disappear quickly. When natural capital depletes with persistent declines in ecosystem services and irrigation becomes unreliable, they can no longer buffer income against droughts. There is also ever-growing evidence of irrigation giving rise to perverse incentives, which leads to moral hazard problems. The availability of irrigation in arid areas can create the illusion of abundance, which increases the cultivation of water-intensive crops that are ultimately unsuited to these regions. In these areas, irrigation can paradoxically accentuate the adverse impacts of droughts. The end result is increasing vulnerability that leads to even more distress migration.

This has important implications for long-term sustainability and growth. An optimal strategy would need to balance both short-run and long-run trade-offs. This would entail (a) improving rural productivity in the short