The Impacts of Urbanization to Improve Agriculture Water Use Efficiency—An Empirical Analysis Based on Spatial Perspective of Panel Data of 30 Provinces of China

China has witnessed accelerated urbanization since the reforms and open policies which began in 1978. This eventually resulted in increased residential water requirements and worsening water shortages, particularly in the current century. In the context of resource and environmental constraints, improving agricultural water use efficiency (AWUE) is a crucial issue to ensure food security, improve the ecological environment, and meet the needs of sustainable agricultural development. Based on the panel data of 30 provinces in China from 1999 to 2018, the article uses the Super-SBM model to measure the AWUE. Moreover, the study uses the entropy method to establish the urbanization evaluation index system from the dimensions of population, land, economy, measures the comprehensive level of urbanization development, and further constructs a dynamic spatial econometric model. We use the unconditional maximum likelihood estimation method to evaluate the impact of urbanization development on AWUE and its heterogeneity. The findings reveal that the AWUE considering undesired outcomes has generally shown a steady improvement, but there is ample space for resource conservation and environmental protection, and there are noticeable differences among regions. The decomposition of spatial effects shows that urbanization development in each region has a short-term positive effect on AWUE in the region and neighboring regions, and a long-term effect exists only in the western region. The impact of urbanization in different dimensions has been found that both land urbanization and economic urbanization contribute to the improvement of AWUE, while population urbanization helps to improve AWUE by improving the awareness level of the farmers.