Is irrigation driven by the price of internationally traded agricultural products?

A recent trend of literature investigates how international trade compensates or accentuates the differences in countries’ endowments in water resources and whether trade regulation should be used to improve the use of water resources at the global level. We develop a simple model establishing a positive link between the demand for irrigation water of agricultural producers and the international price of irrigated crops. Unlike previous works that focus on the cost and scarcity of water resources, we emphasize the role of international trade in the allocation of water resources in agriculture. We test our model empirically using data on 243 irrigated crops exported by 183 countries, and find that countries’ irrigation behavior is strongly linked to the global price of crops. The export price effect is stronger when countries are net exporters of irrigated crops and weaker for cereals that constitute a pillar of most countries’ domestic food security.