National and Regional Implications of Drought for Production and Employment: A General Equilibrium Analysis

Drought is a natural hazard that causes the production and income losses and has severe effects on the poor households. In this context, a comprehensive assessment of economic impacts of drought provides critical information to drought mitigation policies and programs. To this end, the effects of drought on the output and employment of Iran's economy as a whole were examined using two models including a single-regional computable general equilibrium (CGE) and a multi-regional computable general equilibrium (MRCGE) model. Applied data were obtained from the social accounting matrix (SAM) of year 2001 and Iranian input-output table of year 2006. The drought defined as lower access to water was considered in three scenarios of weak, moderate and sever options. The results obtained from single-regional CGE model indicated that GDP decreased by 1.7 to 5.5 percent based on the severity of drought; the corresponding values for MRCGE were 2.2-6.4 percent. Reduction of regional gross output for Kerman, Hamedan, Fars, and Ardabil provinces were more than those for other provinces. As shown by the results, a decrease in output induced a fall in employment, but a reduction in employment was found lower than those of output. Finally, the study recommended developing the water-saving measures as well as creating more jobs in rural industries.