H-O for H2O: Can the Heckscher-Ohlin Framework Explain the Role of Free Trade in Distributing Scarce Water Resources Around the Middle East?

This paper aims to test econometrically the validity of Heckscher-Ohlin (H-O) theory within the context of export patterns of 11 relatively water abundant and relatively water-scarce countries located in the Eastern Mediterranean and Middle East and North Africa (MENA) regions. For this purpose, the paper calculates the revealed comparative advantage (RCA) and net trade indices (NTI) for 13 sectors in each country and estimates the relationship between RCA values and water requirements of production in each sector. The results are then used to test whether parameter values estimated from this exercise can be linked to water endowments of the countries considered. By helping determine whether the countries in the sample act according to their comparative advantages, econometric results from this innovative application of H-O theory yield interesting policy conclusions.