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Increasing globalization and agricultural trade over the past few decades has put tremendous pressure on natural resources, especially key inputs such as water and land. This has generated increased interest in understanding not merely the implications of virtual water trade, but also the driving forces behind it. In this paper, I attempt to gauge the impact of potential economic and agri-environmental factors that drive India’s imports and exports of aggregated virtual water in international trade of over 200 crops for the period 1992-2017 with 150 trading partners. The economic factors affecting India’s VWT include the level of economic development which is measured using GDP per capita. The agri-environmental variables driving India’s VWT are identified to be the endowments of water and land. These are reviewed within the context of trade theories such as Heckscher-Ohlin and its extensions. Pressure on water resources due to agricultural activities is also assessed as a potential determinant. Using an augmented gravity model of trade, separate equations for virtual water exports and imports of India are estimated using the Pseudo Poisson Maximum Likelihood (PPML) estimator. Given the panel structure of dataset, fixed effects are configured to account for unobserved heterogeneity. A brief descriptive analysis of trade dataset is also presented. India’s exports of virtual water are found to be driven by domestic water availability and utilization in agriculture, and importers’ economic development. There is evidence for a relative water endowment effect driving VWE. Land endowments produce unexpected results in exports. VWI however offer only partial evidence for a relative water endowment effect. Greater land availability is found to reduce import dependence of India, while more land endowments among partners sets off a ‘resource saving’ tendency and reduces India’s imports.
Keywords: virtual water exports, virtual water imports, agriculture, gravity model, endowment effects.
