What is Wrong with Virtual Water Trading? On the Limitations of the Virtual Water Concept

Abstract

Virtual water, the amount of water used along a good's value chain, has come under discussion. Fairness and efficiency problems are seen to arise in the reallocation of access to water resources through the means of international trade. Moral issues are attached to both imports and exports, and even to a country's own consumption of virtual water. Global institutional arrangements have therefore been suggested to regulate virtual water trade both efficiently and ‘fairly’. With this paper we will provide a short overview of the concept's history and findings, and an analysis from the perspective of economic trade theory, bringing up the old debate about the economic and environmental merits of free trade. The contribution of this paper will be to examine the performance of virtual water concepts in advising business or policy decisions in the form of global governance arrangements. It must be concluded that the virtual water concept is limited in terms of its usefulness in providing policy advice. The usually applied normative criteria are inconsistent, implying governance schemes that improve neither efficiency nor sustainability Water-related problems should be solved in the respective arenas and not by global governance schemes or trade barriers.