Scarcity‐Weighted Virtual Water, Sustainable Economic Growth and Productivity: Evidence From 43 Countries

Water scarcity constrains development, but its economy‐wide implications across global supply chains remain difficult to quantify. This study combines consumption‐based water footprints from EXIOBASE 3.8 with basin‐level water‐stress factors to construct a scarcity‐weighted virtual‐water intensity indicator. Two‐way fixed‐effects models covering 43 countries over 1995–2019 examine its associations with economic growth and productivity. Non‐agricultural specifications reveal no detectable effects, suggesting that macroeconomic constraints operate mainly through agricultural water use. Full‐sector estimates associate greater intensity with lower GDP per capita and total factor productivity growth. These associations persist (and strengthen for GDP) when the absolute scarcity‐weighted footprint replaces the GDP‐normalised indicator, suggesting that GDP normalisation does not explain the findings. Net scarcity transfer analysis links productivity losses primarily to domestic scarcity, while growth effects are consistent with transmission through trade. The findings position agricultural water governance, trade diversification, and water‐use efficiency monitoring as central levers for Sustainable Development Goal 6.4 and sustainable economic development. The evidence suggests that the macroeconomic association between scarcity‐weighted virtual‐water dependence and economic performance is strongest during periods of rapid scarcity intensification and becomes substantially weaker in later periods; the full‐sample estimates should accordingly be read as average conditional associations across historically distinct periods rather than as invariant structural parameters. Because identification rests on falsification and robustness tests rather than strong instruments, the findings are presented as robust empirical associations consistent with the existence of a potential macroeconomic constraint, rather than as definitive causal effects.