Although the temporal transferability of input–output (IO) models has been examined before, no study has investigated the impacts of changing water availability conditions over time, e.g., due to climate change, on the predictive power of water-inclusive IO models. To address this gap, we investigate the performance of inter-regional supply-side input–output (ISIO) models that incorporate precipitation and water intake under varying climates over time in a transboundary water management context. Using the Saskatchewan River Basin in Western Canada as a case study, we develop four ISIO models based on available economic and hydrological data from years with different climatic conditions, i.e., two dry and two wet years. Accounting for price changes over these years, our findings indicate that the joint impact of changes in water availability and economic structural changes on economic output can be considerable. The results furthermore show that each model performs particularly well in predicting the economic output for similar climatic years. The models remain reliable in predicting economic outputs over several years as long as changes in water availability are within the range observed in the water-inclusive base year ISIO model.

A traditional engineering-based approach to hydro-economic modelling is to connect a partial equilibrium economic assessment, e.g., changes in sectoral production, to a detailed water resources system model. Since the 1990s, another approach emerged where water data are incorporated into a macro-economic model, e.g., a computable general equilibrium or input-output model, to estimate both direct and indirect economic impacts. This study builds on these different approaches and compares the outcomes from three models in the transboundary Saskatchewan River Basin in Canada. The economic impacts of drought and socioeconomic development are estimated using an engineering-based model, a macro-economic model, and a model that integrates a water resources model and a macro-economic model. Findings indicate that although the integrated model is more challenging to develop, its results seem most relevant for water allocation, owing to capturing both regional and sectoral economic interdependencies and key features of the water resources system in more detail. • We compare three hydro-economic modelling approaches in a transboundary river basin. • Their applicability is examined under drought and economic development scenarios. • Usefulness of integrating water management and macroeconomic models is demonstrated. • Ignoring linkages between basins and sectors affects the model simulation results. • This may mislead water allocation decision-making in transboundary river basins.

In this study, we develop a hydro-economic modelling framework for river-basin scales by integrating a water resources system model and an economic model. This framework allows for the representation of both local-scale features, such as reservoirs, diversions, and water licenses and priorities, and regional- and provincial-scale features, such as cross-sectoral and inter-regional connectedness and trade flows. This framework is able to: (a) represent nonlinearities and interactions that cannot be represented by either of typical water resources or economic models; (b) analyze the sensitivity of macro-scale economy to different local water management decisions (called 'decision levers' herein); and (c) identify water allocation strategies that are economically sound across sectors and regions. This integrated model is applied to the multi-jurisdictional Saskatchewan River Basin in Western Canada. Our findings reveal that an economically optimal water allocation strategy can mitigate the economic losses of water stress up to 80% compared to the existing water allocation strategy. We draw lessons from our analysis and discuss how integrated inter-regional hydro-economic modelling can benefit vulnerability assessment and robust decision making.

Finding sustainable pathways to efficiently allocate limited available water resources among increasingly competing water uses has become crucial due to climate-change-induced water shortages and increasing water demand. This has led to an urgent need for the inclusion of economic principles, models, and methods in water resources management. Although several studies have developed macro-economic models to evaluate the economic impacts of alternative water allocation strategies, many if not most ignore the hydrological boundaries of transboundary river basins. Furthermore, of those using input-output (IO) models, only a handful have applied supply-side IO models. In this paper, we present one of the first attempts to develop an inter-regional, supply-side IO modelling framework for a multi-jurisdictional, transboundary river basin to assess the direct and indirect economic impacts of water supply restrictions due to climate and policy change. Applying this framework to the Saskatchewan River Basin in Canada encompassing three provinces, we investigate the economic impacts of two different water supply restriction scenarios on the entire river basin and its sub-basins individually. We find that in the face of climate-change-induced water shortage, economic losses can be reduced by almost 50% by adopting appropriate management practices, including prioritization of water allocation, using alternative water sources, and water re-use technologies. • Sectoral water use is incorporated into a supply-side input-output model. • The model is spatially disaggregated into 6 sub-basins across 3 Canadian provinces. • The model evaluates the economic impacts of alternative water allocation policies. • The model results assist policymakers prepare efficient water management plans. • Adopting proper policies, potential economic drought losses can be reduced by 50%.