The effect of terrestrial water storage anomalies on regional economic growth

Terrestrial water storage (TWS) is an essential resource for agriculture, urban development, and energy production, as well as ecosystem health and climate change mitigation. Through satellite gravimetry methods, GRACE and GRACE-FO measurements enable the assessment of TWS anomalies globally, revealing significant alterations over the past two decades due to natural variability, climate change impacts, and direct human influence. Existing studies focus on the impacts of TWS changes on the production of specific crops or agricultural output in specific countries, yet the effects on agro-economic output on a more global scale are not yet well understood. 

To address this gap in our understanding of the macroeconomic impacts of TWS changes, we combine GRACE measurements with data on economic growth from more than 1600 subnational regions worldwide over the last 60 years. We then empirically assess the impact of TWS anomalies on regional economic growth, employing a long-difference model and fixed-effects panel regression, following recent work on temperature and precipitation impacts. We find that negative groundwater anomalies are associated with reductions in economic growth in a majority of regions. This highlights the critical role of freshwater availability, in particular in low-income regions. Furthermore, we observe that the relationship between TWS and economic growth depends on both meteorological and socioeconomic factors. These heterogeneous relations reflect the complex interplay between water resources and economic development, and indicate potential endogeneity therein. We therefore further discuss instrumental variable approaches for isolating the meteorological drivers of water storage and their causal impact on economic output. These findings contribute valuable insights to the ongoing discourse on sustainable water management and its implications for economic prosperity.