Water Poverty Index evaluates water-scarcity

Water: More Valuable than Diamonds

A new study by University of Arkansas economists shows a strong relationship between economic freedom and access to water.

David Gay and Charles Britton, economics professors in the Sam M. Walton College of Business, and Richard Ford, professor of economics at the University of Arkansas at Little Rock, compared data from two important international indices and found that greater economic freedom leads to economic development, which in turn decreases the amount of poverty associated with a nation's lack of access to water.

When the United Kingdom's Centre for Ecology and Hydrology released the Water Poverty Index, a new interdisciplinary tool for measuring the world's water-scarcity problem, the Arkansas researchers wanted to examine the relationship between water and economic freedom, especially since those who developed the index acknowledged the connection between water use and economic development.

The Water Poverty Index considers five components: resources, access, capacity, use and environment. The researchers limited their analysis to the area of access, which focused on the percent of population with access to clean water, sanitation and irrigation.

To compare water poverty to economic freedom, Gay and his colleagues used the Heritage Foundation's Index of Economic Freedom, which defines economic freedom as "the absence of government coercion or constraint on the production, distribution, or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty itself." Stated differently, it is an economic system in which people are free to actively participate -- to work, produce, consume and invest in ways they think are most productive.

The index considers 10 factors --

trade policy,

fiscal burden of government,

government intervention in the economy,

monetary policy,

capital flows and foreign investment,

banking and finance,

wages and prices,

property rights,

regulation, and

black market.

These factors were used to determine the absolute level of economic freedom of 161 countries and to compare those countries to one another.

The researchers discussed their findings within the context of an economics puzzle known as the "paradox of values." Formulated by Adam Smith, the founding father of economics, in his influential book Wealth of Nations, "paradox of values" considers the question of why diamonds have a higher market value than water when the latter sustains life and former does not.

The researchers' study was published in the Forum of the Association for Arid Lands Studies.

David Gay, professor of economics
Sam M. Walton College of Business
(479) 575-6222, dgay@walton.uark.edu

Charles Britton, professor of economics
Sam M. Walton College of Business
(479) 575-6218, cbritton@walton.uark.edu

Matt McGowan, science and research communications officer
University Relations
(479) 575-4246, dmcgowa@uark.edu


Heritage Foundation -- Index of Economic Freedom
Centre for Ecology and Hydrology -- Water Poverty Index