The effect of water on economic growth is beyond emphasis. Economic growth rates are affected, among other things, by scarcity of water. Both water demand and supply, on the other hand, are also influenced by the level of production and other socio-economic variables. This interrelationship between economic variables and water scarcity has been neglected in econometric literature. The reason behind this negligence could be attributed to the fact that economic models were built in developed countries which do not face serious water shortage problems. However, in developing countries the situation is rather different. Water is the sine qua non of development and a critical issue not only in making decisions concerning agricultural investment but also in most socioeconomic factors.
Water resources in Jordan have considerably decreased since 1980. Irregular rainfalls, mismanagement of water resources and factors of high population growth had aggravated the water deficiency. These facts have been emphasized by many studies, especially a study which examined the economic importance of water, problems of water supply and water quality, and regional conflicts over water. (1) Other studies emphasized the role of water as a key factor in creating and sustaining peace and hence paving the way to economic growth (2). Most studies that addressed water problem in Jordan have concentrated on technical, rather than economic, issues such as quality of water, utilization of water resources, conservation and reuse of water and water saving technology. Few studies, however, addressed economic issues related to water, such as estimating irrigation water demand function and its price elasticity (3) and estimating demand and supply functions for drinking water (4). From the socioeconomic point of view, the challenging problems that face Jordan are unemployment, poverty and low productivity especially in agricultural and services sectors. These problems make it necessary to search for solutions for the nagging water problem.
The contributions of this research are three-fold. First, it examines the available options and the experience of Jordan's management of water problem and suggests an economic approach to reduce water problems, through developing an econometric model suitable for evaluating water policies. Second, it links future economic and social developments with water availability and measures these developments through a simulation process. Finally, it views water as a production factor.
The status of water sector in Jordan: During the last two decades, the expected loads of rain that normally refill the dams, the Jordan River and the underground natural water storages did not meet the demand for water. To cope with the threatening water scarcity each summer, a rigorous water-rationing schedule is put in place for households, farmers and industries. While tentative water rationing schedules are altered frequently according to rainfall received and depending on estimates of water availability during summer, the rationing plan for cities generally remains unchanged because drinking water supply to municipalities has priority. As a developing economy, a large proportion of the labor force is engaged in agriculture that consumes most of the country's water supply. From 2002-2007, annual GDP growth rates at constant prices were, on average, 5.7%. Furthermore, the poor management of water and the fluctuations of rainfall have resulted in a decreasing agricultural production per capita and a decline in per capita consumption of water. From 2002-2007, the average growth rate of agricultural sector was negative, at -2.6% (5). The per capita consumption of water in Jordan, estimated between 70 and 75 liters per day, has reached alarming scarcity compared to what is internationally conceived as adequate water consumption at 200 liters per day. Water use in Jordan, as in many other developing countries in the region, is dominated by agriculture, which poses the biggest threat to water resources. Agricultural water, used mostly for irrigation and livestock, accounts for almost 70% of the total demand for water, but returns less than five per cent to the national economy. The gulf between agricultural consumption and contribution to the GDP has led economists and agriculture experts to advocate reducing agriculture's water allocation. Industrial water use in Jordan accounts for approximately 9% of consumption and is concentrated in certain geographic regions mainly Amman, Zarka and Irbid governorates. Municipal uses of water include supply to the domestic sector, as well as to commercial buildings and to washing facilities. Municipal use represents the second largest use, at 7%.
At the planning level, several policies have been suggested to reduce Jordan's grim dilemma of water shortage. Jordan suggested a comprehensive water management plan in five priority action areas, as follows:
* Reduce the water demand
* Encourage appropriate private sector participation in water resource management
* Create real incentives to encourage efficient water conservation and discourage waste including enforcing fully the existing regulations on water use and develop legislation to close gaps in the laws
* Build and maintain a public opinion setting in which knowledge of this vital resource and the means of conserving it stay on the agenda of groups and individuals throughout the land
* Strengthen the capability of water-related institutions so they can develop and fully implement sound water policies and programs
At the implementation level, solutions to the problem of domestic water supply in Jordan have been many and varied. On the supply side, the solutions include the expansion of conventional supplies through increased damming of rivers and streams and development of boreholes on a large scale, typically in combination with damming and recycling wastewater. On the demand side, solutions include establishing seasonal quotas and usage restrictions, rationing by time of day or area and setting price penalties. Efforts to resolve the above-mentioned problems have focused almost exclusively on the development of additional water supplies. The governmental institutions that have evolved to deal with water scarcity have been committed to the construction of storage and conveyance facilities (primarily for irrigation), while at the same time neglecting to deal fully with groundwater over-extraction and related environmental problems.
Policies affecting the demand for water emphasized that the demand is influenced by increased irrigation, rapidly increasing population and industrial development. Policies designed to reduce the demand for water had concentrated on the following activities:
* A nationwide publicity programmes aiming at educating consumers about vitality of water. These programmes are carried out through mass media
* Privatizing water management in co-operation with...