Impacts of Local Resource Scarcity Risk on Global Trade Network

Abstract

Local resource scarcity risk can transcend beyond national borders through international

trade activities. However, there lacks a system-based approach to evaluate such risk posed from

local resource scarcity to the trade-connected global economy. Using water resource as an

example, this research develops a probabilistic framework to examine the impacts of local

resource scarcity risk on the global trade network. Impacts of both country-level and basin-level

local water scarcity risk on the global trade network are evaluated based on the data from Eora

database, AQUASTAT database, and Water Footprint Network. The results identify top

country-sectors in virtual water scarcity risk exports, including agriculture in major economies

including Colombia, USA, Italy, France and Spain, which are critical for the resilience of the

global economy against water scarcity risks. The results also identify top country-sectors in

virtual water scarcity risk imports, showing the vulnerable sectors to local water scarcity risks of

upstream suppliers. In addition, the basin model identifies the importance of local water scarcity

risks of international basins, which indicates a need in peaceful cross-border cooperation to

mitigate water scarcity risks. Overall, these findings provide implications to policy makers and

corporate executives in developing strategies for mitigating water scarcity risks.