The Effect of Water Utilization on Economic Growth in Iran

In this paper, we examine the impact of the rate of water utilization on economic growth. There has not been an adequate attention paid to the issue of natural resources and their importance for economic growth. In this study, the instrument for water measurement is the water utilization rate. Other explanatory variables used in the model include the share of water exports, the share of water activities, and the share of gross capital. The necessary data are compiled according to the time series method and for the years 1964-2014. The hypothesis in this study is based on the Barro and Sala-i-Martin model (1990) developed by Barbier (2004), which is proposed for two groups of countries. The first group is the countries that are not constrained by water resources and the second group is the countries with inherent constraints on water resources. The effect of the rate of water utilization on economic growth for the first group is inversely proportional to the U-curve. However, for countries in the second group such as Iran, the relationship between water utilization rates and economic growth may or may not be similar to the U curve, which necessarily demands for proper testing. In this study, ARDL econometric method is used with the estimation boundary test. The results show that the relationship between water utilization rate and economic growth in Iran is not similar to inverse U curve and the form of this relationship is linear and upward.