Economic Growth's Impact on Water Use and Pollution in Mexican Regions

Following the Environmental Kuznets Curve hypothesis, an inverted U-shaped relationship is expected between economic growth and water utilization and pollution. As economic growth increases, so do water use and pollution. However, above a certain growth level (turning point), further growth has beneficial impacts, using less water and improving its quality. Recently, N-shaped relationships seem to prevail over inverted U curves — there is a rebound effect. However, the empirical evidence shows conflicting results, partly explained by the mobility and aggregation of economic activities across a large space (the whole country). Accordingly, we build a unique dataset with measures of water use (the ratio of water withdrawals to renewable water resources) and pollution (biological oxygen demand) to estimate water utilization and pollution equations using panel data from the 32 Mexican states (2005–2020). The article's contributions are threefold. First, it introduces methodological innovations to address endogeneity using advanced panel data econometric techniques. Second, it provides new insights into the economic growth-water relationship, identifying N-shaped patterns for water use and inverted N-shaped patterns for water pollution. Third, it discusses policy implications and future research directions in environmental management and sustainable development. The findings suggest improvements for inter-regional water trade and indicate that economic growth may lead to sustainable water pollution patterns, highlighting the potential for regulatory interventions to mitigate pollution and promote efficient water use.