Water diversion and agricultural production: Evidence from China
Rui Yang, Hang Xu
Abstract
Water diversion can alleviate water shortages caused by the uneven distribution of water resources. China’s South-to-North Water Diversion Project (SNWD) is the largest water diversion project worldwide. Based on the prefecture-level data of China’s Huang-Huai-Hai Plain from 2000 to 2020, this study employs an empirical strategy of Differences-in-Differences (DID) to analyze the impact of SNWD on agricultural production. The results show that SNWD has significantly increased agricultural production, measured by the agricultural value added. The estimated results of the benchmark model remain robust when the contemporaneous policy is addressed, an alternative outcome is used, subsamples are estimated, and alternative estimation techniques are employed. This study argues that the potential impact mechanism may be that SNWD significantly increases the acreage for cash crops but reduces that for grain crops. Heterogeneity analysis shows that in prefectures with high temperature or land potential, SNWD’s impact on agricultural value added is relatively low. In contrast, in areas with prolonged sunshine or high slopes, SNWD’s impact on agricultural value added is relatively large. Given the low added value of grain crops, the government should consider strengthening food security by subsidizing water supply to sustain grain production.