A novel integrated hydro-economic modeling framework that links a bottom-up partial equilibrium (engineering) model with a top-down (economic) general equilibrium model is developed for assessing the regional economic impacts of water resources management and infrastructure development decisions in a transboundary river basin. The engineering model is employed first to solve the water allocation problem for a river system in a partial equilibrium setting. The resulting system-wide changes in optimal water allocation are subsequently fed into the general equilibrium model to provide an economy-wide perspective. This integrated hydro-economic modeling framework is illustrated using the Eastern Nile River basin as a case study. The engineering-based stochastic dual dynamic programming (SDDP) model of the Eastern Nile basin is coupled with the computable general equilibrium (CGE) model GTAP-W to assess the economy-wide impacts of the Grand Ethiopian Renaissance Dam (GERD) on the Eastern Nile economies.

A multi-country, multi-sector computable general equilibrium (CGE) model is employed to evaluate the economy-wide impacts of climate change under the IPCC’s A2 and B1 scenarios and existing irrigation development plans in the Nile basin. The study reveals that climate change adversely affects mainly downstream Egypt and to a lesser extent Sudan, while it results in a limited impact in the upstream countries Ethiopia and the Equatorial Lakes region, where irrigated agriculture is still limited. The economic consequences for Egypt are especially substantial if the river basin countries pursue a unilateral irrigation development strategy. In order to prevent water use conflicts and ease water scarcity conditions, a cooperative water development strategy is needed as well as economic diversification in favor of less water-intensive sectors, combined with investments in water-saving infrastructure and improved irrigation efficiency.

A multi-country, multi-sector computable general equilibrium (CGE) model is used for the first time to evaluate the economic and water resource availability effects of trade liberalization (removal of import tariffs) and facilitation (reducing non-tariff barriers) under climate change in the Nile Basin. The analysis uses the GTAP 9 Database and the GTAP-W model that distinguishes between rainfed and irrigated agriculture and implements water as a factor of production directly substitutable in the production process of irrigated agriculture. A full trade liberalization and improved trade facilitation scenario is considered with and without climate change. The study reveals that trade liberalization and facilitation generates substantial economic benefits and enhances economic growth and welfare in the Nile basin. The effect of instituting a free trade policy on water savings is found to be limited, while climate change improves water supply and hence irrigation water use, enhancing economic growth and welfare in the basin.