Water is a distinctive resource because it constitutes a direct input to almost every economic activity, drawing a continuous thread from primary use in agriculture, through manufacturing, and into the myriad of service sectors. Despite a long economic history, water allocation stands out as one of the most significant cases of market failure in both developing and developed economies. The institutional arrangements which have governed water allocation have fostered serious resource misallocation, technological choice which is neither statically nor dynamically efficient, and an array of negative economic and environmental externalities which propagate through downstream linkages to the rest of the economy.
Historically, the relative abundance and regenerative nature of water resources have fostered inefficient water use. In modern times, the clear delineation of regional boundaries limiting migration, population growth, and rising living standards have combined to intensify water use in agriculture and elsewhere, and the sustainable practices for utilising this essential resource are receiving greater scrutiny. It is only a matter of time until the reforms in water allocation, already initiated in a number of countries, are more widely applied. The essential issue is how to devise reforms which have the efficiency and incentive properties to be economically and politically sustainable. To answer this question, which is a pressing concern for many developing countries, we consider the case of Morocco. Our choice of Morocco has been facilitated by the fact that it possesses relatively sophisticated data resources and shares many common characteristics with water-scarce economies. We thus anticipate results from this case to have wider applicability.
In this chapter, we draw on Morocco to illustrate the linkages between trade and macroeconomic policies and sustainable resource use.